Filing Taxes as an American living in Australia. The video below gives a brief summary of what you need to know. It’s worth watching.
Australia is an amazing country that has it all—stunning beaches, vibrant nightlife, the Tasmanian Wilderness and the breathtaking Great Barrier Reef.
If you’re moving to Australia or have recently settled in, financial matters are likely far from your mind. But with every international move, it is important to understand the tax laws that may have a serious impact on your finances.
Expat taxes can be confusing.
The videos below outline some of the most important American expat tax considerations for US citizens living in Australia.
American Expat Tax Basics
All citizens of the United States are required to file a US tax return, regardless of where you live.
The US is one of the only countries who taxes its citizens on worldwide income, so most every expat will need to file.
Thankfully there are special American expat tax deductions and exclusions available to help offset taxes—and avoid the dreaded ‘double taxation’ that sometimes occurs when living abroad.
- Foreign Earned Income Exclusion -allows you to decrease your 2012 taxable income by the first $95,100 or earned income from a foreign country (increases to $97,600 for your 2013 taxable income).
- Foreign Tax Credit – a dollar for dollar credit on the taxes you pay to Australia.
- Foreign Housing Exclusion– an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
In order to qualify for these exclusions, you must meet certain foreign residency requirements. You can satisfy the residency requirement by passing one of two tests:
- Bona Fide Residence Test– You must live in a foreign country for at least one full calendar year and plan to stay there indefinitely (ie no plans to move back to the US)
- Physical Presence Test– Most expats qualify by this test, as you must simply have foreign earned income, a ‘tax home’ in a foreign country and be physically present outside the US for at least 330 days out of a 365-day period.
When qualifying through the Physical Presence Test, it is important to pay close attention to the number of days you spend overseas.
If you are in Australia for only 329 days in a calendar year, you lose all foreign exclusions and credits, which could cost you thousands.
Australian Tax Specifics
What is the tax rate?
Australia’s tax system works on a progressive, graduated basis. Simply put, as your income increases, so does your tax rate. Tax tables for residents and non-residents are different so it’s important to understand your residency status. You are a resident if you reside in Australia and are living there permanently, and live and work in Australia for more than six months.
What about foreign residents?
Foreign residents are taxed differently than Australian residents. For the specific tax rate that applies to you, refer to the Australian Taxation Office’s income tax rate chart.
When are Australian taxes due?
Australia’s tax year runs from July 1 to June 30 of the following year. You are required to file your Australian tax return by October 31. If you hire a professional expat tax agent, then you must have registered as a client by that date.
What about Social Security?
With the US—Australia tax treaty (called a Totalization Agreement), employees in Australia do not need to pay US Social Security taxes. Self-employed individuals are given the freedom to decide if they would prefer to contribute to Social Security in the US or in Australia.
What is superannuation?
Superannuation is similar to a US 401(k), as employee contributions are voluntary. What differentiates superannuation from a 401(k) is that employers are required to contribute 9% of their employees’ base wages. Employee contributions are tax-deductible for Australia but not for American expat tax considerations. Access to superannuation funds are limited to those who have reached retirement age or can prove special circumstances that create a need for earlier access.
Is foreign income taxed in Australia?
Residents of Australia must report their worldwide income to Australia, but non-residents are not obligated to do so. Temporary residents are required to report foreign earned income but do not have to report earnings from investments or other passive income sources.
Are tax considerations different if I’m self-employed?
If you are a self-employed resident of Australia, you will pay the corporate tax rate which is a flat 30%. Your corporate taxes are pre-paid quarterly based upon your anticipated annual fee (this is mandatory, not voluntary). While your corporation does not need to be incorporated in Australia for it to be considered an Australian corporation, it must only carry out business in Australia and have Australian ownership or control. How you structure business also affects your tax rate, so it is wise to check with a tax specialist to understand how your business will be treated.
What about the Goods and Services tax?
The GST (Good and Services) is a value added tax of 10%. This is applied to most purchases of goods and services with some exceptions. If you are a business owner with more than AUD$ 75,000 in receipts, then you will have to register with the government and collect the taxes.
If your family and friends come to visit, they will be pleased to know that tourists in Australia are eligible to receive a refund of the GST that they have paid over the previous month when they exit the country.
About the Author: This article was written in October, 2013 by David McKeegan, Co-founder and co-president of Greenback Expat Tax Services.