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Tax Guide for US Expats in Australia

10 min read

There are thousands of US expats living in Australia right now. If you’re one of them, then there are a few things you need to know about doing your taxes.
 
For example: Were you aware that you need to follow the tax seasons in both countries and file returns for each? There can be serious consequences (such as fines and other penalties) if you don’t follow the rules correctly or miss deadlines so it’s important to know what you need to do.
 
In this article we’ll run you through the most important points of US/Australian tax law for individuals. If you have any additional questions at any time or are unsure about your own situation, then it’s a good idea to speak to one of our experienced tax agents here at H&R Block and we’ll help you through it.
 

The Basics

 
The most important thing to know is that all American citizens and green card holders MUST file a tax return each year and pay US taxes on their income regardless of where they work and live. So if you’re living and working in Australia and filing an Australian tax return each year, you still need to do a US tax return as well.
 
But this doesn’t mean you have to pay double taxes.
 
There’s a US-Australia tax treaty in place (see more on this below) that means you can avoid a double tax bill thanks to special credits and exclusions set by the Internal Revenue Service (IRS). These concessions mean that you might not end up paying any extra taxes at all in your US return, but you still have to file it each year anyway. Unfortunately, it means extra paperwork, whether you’re new to being an expat or have been living this way for years, and it can get a bit confusing. So it’s always smart to get help from the experts when you need it.
 

Who counts as a US expat?

 
Any US citizen living and working or studying in Australia is essentially considered an expat. We also offer US tax return services for Australians who are not US citizens but may still need to file a US return.
 
To be regarded as a tax resident in Australia, there are various tests you can apply, such as the Resides Test (you are physically present in Australia, your intention and purpose is to live here, you have family, business and/or assets here) or the Domicile Test (your permanent home is in Australia) or the 183-day test (you’re physically present in Australia for more than half of the tax year).
 

What do US citizens need to report?


The main thing you need to declare when doing your dual returns is your income, including any salary or wages received from both US and non-US sources, interest earned, dividends received and any rental income. You also need to report any superannuation payments.


If you have more than $10,000 in total across all your foreign (non-US) bank accounts, superannuation accounts, etc., then be aware you’ll need to file an FBAR (Foreign Bank Account Report) every year and if you have assets worth more than $200,000 then you may be subject to FATCA (Foreign Account Tax Compliance Act) reporting requirements as well.
 
Depending on where in the US you are registered, you may also have to file state tax returns despite living in Australia if you have been physically present in that State during the year or have earned income sourced from that State (such as rental income). States in the US that require this include California, New Mexico, North Carolina, New York, Virginia and Massachusetts.


What is the current US-Australia tax treaty?


Australia and the US have established a tax treaty that defines the taxation rules for individuals living between the two countries (that’s Americans living in Australia, and Aussies living in the US). It’s a useful arrangement that gives some guidance when it comes to income taxes, corporate taxes and capital gains taxes, and it might seem confusing at first but it actually helps to keep the rules clear for everyone. Most importantly, it helps you avoid paying double taxes!
 
You don’t need to know and understand every part of this treaty. But it’s a good idea to get help from an expert if you have any questions or doubts, as some elements can be tricky, such as the US Savings Clause that effectively lets the US tax its citizens as if the treaty never existed.
 
What you do need to know is that Australia shares the tax information it holds on US expats with the US authorities. This means they are well informed about all your finances, so failure to correctly file FBAR or FATCA reports could mean penalties and fines down the line for you.
 

Important dates for US tax filing

 
One of the tricky things about filing both US and Australian tax returns simultaneously is that the deadline dates are different for the two countries.
 
The Australian tax year begins on the 1st July each year and finishes at the end of June. However the US tax year follows the calendar year, that is January 1 to December 31, and US returns are due on April 15th each year, although US expats are given an automatic extension through to June 15th.
 
Failure to file your return on time and pay any outstanding taxes can result in a fine, so it’s important to stay on top of this each year. And don’t worry if you accidentally make a mistake when filing your US tax return – you can adjust income and deduction information by using the 1040X form.
 

How can US expats lower their US tax bill?

 
While it’s important to pay your tax bill each year, you don’t want to be paying more than is legitimately necessary. So it’s a good idea to make sure you take advantage of any tax breaks available to you.
 
Three key options you should be aware of are the Foreign Earned Income Exclusion (which, as the name suggests, allows you to exclude a certain amount of foreign earned income from your US taxes), Foreign Tax Credit (credit for income taxes paid to a foreign government) and Foreign Housing Exclusion (which allows you to deduct certain housing expenses). There’s also a Child Tax Credit that allows expat parents to deduct $2000 from their US tax bill for each child in their care. 
 

Does renouncing US citizenship avoid tax liability?

 
If this all sounds like a bit of a hassle, you might want to consider renouncing your US citizenship if you have dual citizenship with Australia. If you plan to stay in Australia long term and are happy to cut your ties with the US, then this could be an option for you.
 
But be warned that renouncing your US citizenship only releases you from tax obligations going forward – so you are still liable for any tax owing prior to the moment you stop being a US citizen. You also need to pay a charge of $2350 to give up your US citizenship, and possibly also an exit tax.
 

How do I file a US tax return from Australia?


These days, it’s easier than ever to complete your US taxes from abroad and our team at H&R Block are here to help make it even smoother.
 
There are a number of options for you to choose from:
 

  1. You can contact our US team in Australia directly and one of our experienced tax consultants can help you review your requirements and lodge your US return
  2. Lodge your US tax return online with the assistance of an expert
  3. Use our Do-It-Yourself software

 
Our tax consultants are experienced professionals with detailed knowledge of the US system, so we can make sure you do everything correctly and pay the lowest amount of tax possible. Our local US tax team is currently based only in Sydney, but are happy to assist you wherever you’re based.
 
Get in touch with us today and let us help you tick all the right boxes and get your taxes done, so you can relax and enjoy your expat life.

Book an online appointment today

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