Australia has been a destination for many expats from different parts of the world. Sydney, Canberra and Melbourne have the highest concentration of American expats. Moving to Australia is full of excitement and challenges. Special attention must be paid to the Australian tax system because it is one of the most complex tax systems in the world. The taxes are imposed in Australia by Federal and State Parliaments. However, income taxes are assessed only on the federal level. States collect payroll tax, land tax, motor vehicle taxes, gambling taxes and stamp duties.
We receive multiple questions from our clients, expats Australia. What are income tax rates in Australia? Which income is taxed in Australia? Do you provide US expatriate tax services to American expats Australia? The purpose of this guide is to summarize the most common questions.
Expatriate Tax Rules and Returns for Expats Australia
US citizens are required to lodge a US tax return and to report their worldwide income whether they live in Canberra or San Diego. To avoid double taxation issues, American expats Australia should apply several exclusions and credit under Internal Revenue Code section 911.
- Foreign earned income exclusion for expats in Australia. Americans expats Australia can exclude up $101,300 for 2016 of their earned income if they lodge a US expatriate tax return and meet one of the test: bona fide residence test or physical presence test. Married Americans expats Australia can claim the same amount of exclusion for a spouse if they file Married Filing Jointly and a spouse is a qualified individual for the purposes of foreign income exclusion.
- Foreign housing exclusion. Additionally, American expats Australia can exclude or deduct foreign housing expenses incurred in Australia if they are eligible to claim the foreign earned income exclusion.
- Foreign tax credit. American expats Australia can deduct foreign income taxes or take a foreign tax credit on a dollar-for-dollar basis.
Many Americans living abroad assume that they are not required to file a US expatriate tax return if their income is below the amount of foreign income exclusion and they do not owe any taxes. However, this assumption is not correct. Please read our article about penalties that American expats face if they fail to file US taxes.
Also, American expats Australia are required to file FinCEN Form 114 (FBARs) if they have financial accounts in Australia or any other foreign country with an aggregate value over $10K at any time during the year.
Tax system in Australia – FAQ
I am an American expat living in Australia. Is my worldwide income taxed in Australia?
If an expat is considered a tax resident in Australia, then s/he must pay an income tax on their worldwide income and taxable capital gains (foreign income tax can be offset on income and gains from foreign sources). If an expat is considered a nonresident for tax purposes, then s/he is taxed only on the income from Australia and certain employment benefits related to the prior employment in Australia. Medicare levy which is 1.5% of taxable income is paid only by residents.
Who is considered a tax resident in Australia?
In general, an individual who resides or is domiciled in Australia is considered a resident. American expat with a permanent residence visa in Australia is a tax resident from the date of arrival. Also an American expat who has been present continuously for at least 183 days in the tax year is considered a tax resident for tax purposes. However, the Commissioner of Taxation reviews an individual’s intention and behavior to determine whether an individual is a resident for tax purposes.
What is the tax year in Australia?
The tax year in Australia consists of the 12-month period that ends on June 30th. American expats should keep this important fact in mind when they file US expatriate tax returns to make sure that the income for US tax purposes is reported on a calendar basis per the IRS.
What are income tax rates in Australia?
Residents are taxed on a progressive scale with tax rates from 15% (taxable income A$6,000) to 45% (taxable income A$180,000). Nonresident tax rates are from 29% to 45% (taxable income A$180,000).
Which income is taxable in Australia?
Taxable income includes employment earnings, income from personal services, bonuses, interest, rent, dividends, royalties, trust distributions, and certain capital gains.
Can an American expat in Australia file an expatriate tax return with a spouse?
Each spouse is individually assessed. If an asset is owned jointly, then all income from the asset is apportioned 50/50. Starting July 1, 2009 a spouse’s definition includes a same-sex couple too for income tax purposes.
Is it a requirement to file an Australian tax return every year?
American expats Australia are required to file an annual tax return by October 31 if they are classified as non-residents. Individuals who are considered residents for tax purposes must complete a tax return if a taxable income exceeds a published threshold (A$6,000 for the year ended on June 30, 2011).
Does Australia have a tax treaty and social security agreement with the USA?
Reciprocal tax treatment is in effect between the USA and Australia. There is a social security agreement between the USA and Australia in regards to double coverage and benefits for international assignees and residents.
Conclusion
These are some of the basic issues that American expats in Australia should consider before they move to Australia or prepare to file US expatriate tax returns.
Americans living abroad with additional questions about US taxes or Australian tax issues should contact an expat tax CPA that provides international tax services. International tax experts at Artio Partners are pleased to assist American expats and foreign nationals with international tax planning as well as US and foreign tax issues.