Guide to US expat taxes in Australia
Welcome to Australia! Australia is a well-known destination for many Americans abroad. With its high life satisfaction rankings, serene weather, and stunning multi-cultural diversity, it's undeniable that moving Down Under is a popular choice!
While you are moving Down Under, do not forget that you still need to file your taxes in the United States, and you should keep the June 15 deadline in mind. To make things even more difficult, you'll also need to file an Australian tax return if you live and work in Australia. Expatfile can help you file your US tax return while living in Australia.
Ready to file your US expat tax return in less than 15 minutes? Make it easy with Expatfile's DIY tax software designed specifically for Americans living and working abroad. The fastest way to get your US taxes done from Australia!
Do I need to file 2 income tax returns - both US and Australia?
US expats must always file their tax returns in the United States, regardless of where they live and work. The reason for this is that the US collects taxes based on citizenship, not residency like most countries. If you are an American (or a green card holder), you must file a US federal tax return in Australia.
Since Australia levies income taxes based on residency, you will also need to file a tax return in Australia if you are an expat.
You can be considered a resident taxpayer if your domicile (the place where you permanently reside) is in Australia. A domicile is a place that is considered your permanent home by law.
Generally, Americans who live and work abroad are required to file tax returns in both the U.S. and Australia. This does not automatically mean that you will be taxed twice on the same income. We will explain this in more detail below.
How do US expat taxes work while you live and work in Australia?
If you work in Australia, you must report that income on your US expatriate tax return.
So, if you are employed by an Australian company and receive wages, you must report that income on your US tax return as an American living and working abroad. You must also report the same income on your Australian income tax return.
To avoid double taxation of your income, the US has introduced several tax breaks for expats, which are explained below.
Most important expat tax breaks:
| Most important tax breaks | |
|---|---|
| Foreign Tax Credit | The Foreign Tax Credit allows you to claim a credit against your US tax dues with the foreign taxes you paid in Australia, dollar-per-dollar. |
| Foreign Earned Income Exclusion | If you meet specific tests (Bona Fide Residence Test or Physical Presence test), you may qualify to exclude up to $108,700 USD (tax year 2021) of your foreign earned income from your US taxable income. |
If these tax breaks are not enough to mitigate your double taxation, the tax treaty between the United States and Japan may also help to fully resolve your double taxation.
In addition, you may be required to file an FBAR if your Australian bank or financial accounts total more than $10,000 in a tax year, or you may even be subject to FATCA reporting requirements (Form 8938) if your foreign assets exceed $200,000 ($400,000 for married couples).
What is the income tax rate in Australia compared to the US?
As an American abroad you need to be aware of the below tax rates for resident taxpayers in Australia. To illustrate the difference with the United States, we have compared both income tax rates.
| Taxable income AU$ | Taxable income US$ | Australian income tax rate | US income tax rate |
|---|---|---|---|
| < AU$18,200 | < $13,695 | 0% | 11% |
| AU$18,201 - AU$45,000 | $13,660 -$33,772 | 19% | 12% |
| AU$45,001 - AU$120,000 | $33,773 - $90,059 | 32,5% | 21% |
| AU$120,001 - $180,000 | $90,060 - $135,089 | 37% | 24% |
| AU$180,001 > | $135,090 | 45% | ~30% |
When is my Australian income tax return due?
Personal income tax returns in Australia need to be filed by October 31. Be noted that their book year runs from July 1 to June 30.
Should I take the FTC over the FEIE if I live and work in Australia?
Since the Australian tax rates are higher than in the United States, it is most of the time more beneficial to claim the Foreign Tax Credit over the Foreign Earned Income Exclusion. Let us illustrate with an example:
- Mike lives and works in Australia and is employed for an Australian employer and receives an AUS equivalent of $140,000.
- The US would levy $25,000 US income tax on this income.
- Australia would levy $30,000 Australian income tax on this income.
- By claiming the Foreign Tax Credit Mike can totally offset his US tax bill with the Australian taxes paid ($25,000 US tax -/- $25,000 Australian tax = $0 US tax).
- Mike even has $5,000 Australian taxes which can be carried forwards as foreign tax credit in future years.
If Mike would take the Foreign Earned Income Exclusion, he would still have a taxable income of $31,300 (if you would not have any other deductions to reduce his taxable income to nil).
In summary, the Foreign Tax Credit is more beneficial than the Foreign Earned Income Exclusion since there is no limit to credit your Australian taxes against US taxes with the Foreign Tax Credit. If your Australian taxes are higher than your US taxes would be, you would not owe any US tax while living in Australia. However, our DIY tax software can determine what is best for your expat situation.
This does not mean that you don't need to file a return. You need to prove that you don't owe by filing a return!
How to deal with the different tax year in Australia in your US taxes?
Australia keeps a different book year than the United States. The tax year in Australia starts on July 1 and ends the next year on June 30. This affects how you report your income for the calendar year required for your tax return as a US expat.
To meet the calendar year requirements, you will need to recalculate your Australian annual returns to reflect a full US tax year.
You could also opt for a pragmatic solution. You consistently report your Australian tax year as a US tax calendar year. As long as you stay consistent each year and do not under report any income, there should not be any issues. Most expats do not owe tax anyway and it's just a timing difference.
How to treat Australian superannuation contributions for your expat tax return?
In Australia there are what are called superannuation contributions. Although these are considered deductible for your Australian taxes, they cannot be considered deductible. In other words, your superannuation contribution cannot be considered tax-free in the United States.
Do I need to pay social security in Australia?
Generally, if you work in Australia, you will have to pay social security contributions. Social security is collected by the Japanese government to fund health insurance, unemployment insurance and pension plans.
Good news for self-employed expats. Australia has a totalization agreement with the US, so you do not have to pay social security twice, in Australia and in the US. If you are a self-employed expat in Australia and can provide a certificate of insurance as proof, you should be exempt from self-employment tax (list SE).
Read more on how self-employed expats and digital nomads are taxed in the US.
How can I file a US tax return from Australia?
Filing your US taxes doesn't need to be intimidating or considered as difficult as we made is super simple with our DIY tax software specifically built with expats in mind. Here at Expatfile, we make preparing your own US expat taxes simple, save and as quick as in 10 minutes!
Ready to file your US expat return and be done for the year? Pleas follow the below steps and finish your expat taxes:
- Log into our DIY tax software for expats and start your return.
- Finish our easy-to-understand questionnaire and see what you owe or receive as a refund. No tax expertise needed!
- Review your return directly.
- E-file your expat return yourself with our built-in connection with the IRS.
- Get an instant receipt acknowledgement from the IRS (through our software).
Give Expatfile a try and start for free today. You pay at the end and only when satisfied! Have any further questions, do not hesitate to reach out to our customer support team.