Tax Tips for U.S. Expats Living in Australia

Our tax tips for U.S. expats in Australia will simplify tax season so that residents can avoid making mistakes. Just because you’re not in the U.S. doesn’t mean you don’t have to pay taxes.

Don't worry; if you're an American living down under, check out these tax tips to help maximize your U.S. tax situation. Find essential, need-to-know tax advice here for Australian U.S. expats.

1. Although your Australian taxes are reported on a July to June fiscal year, you will need to report your U.S. taxes on a January to December calendar year. Be sure to maintain records of when you received income and incurred deductible expenses to ensure that any items reported on your tax return can be properly substantiated.
2. As a U.S. expat living in Australia, you have two main methods by which you can reduce your U.S. taxable income: the foreign earned income exclusion and the foreign tax credit. The foreign tax credit will be better for most taxpayers because Australian tax rates are higher than U.S. tax rates and any excess can be carried forward from one year to another. That being said, the foreign earned income exclusion may be preferable for those who don't want to wait until after their taxes from the following Australian tax year have been filed.
3. While Australian tax law is similar in many respects to U.S. tax law, the two systems treat certain items differently. Unfortunately, the U.S. tax law frequently disregards the favorable tax treatment afforded to certain kinds of income under the Australian system. For example, any employer contributions to your superannuation fund will be deemed to be taxable income on your U.S. return, though they generally are not on your Australian return. Similarly, while a LAFHA allowance is tax-free in Australia, it is regarded as taxable income on your U.S. return.

The Australian Tax Office (ATO) is the equivalent to the Internal Revenue Service, and is the primary tax collection agency in Australia. To file taxes, you must first get a Tax File Number (TFN), which is similar to the Social Security Number in the United States. Like a Social Security number, it is unique to you, and must be safeguarded to reduce the chance of identity theft. This number is assigned for life. People without a Tax File Number will have taxes withheld on both wage income as well as investment income. Temporary residents can obtain TFNs as well if they have a need to do so for tax reasons.

Joint returns are not allowed for married couples, but they must each declare the other spouse on their tax filing.

As does the United States, Australia has a progressive tax system. Progressive tax systems increase the rate of taxation as income increases. Note that Australian tax rates are different for non-residents than for residents. And, the residency definition for tax reasons may be different than for basic residency. Generally, you are considered an Australian resident when you are there and live there permanently. Once you have worked and lived in Australia continually for greater than 6 months, and you continue to living there, you are considered to be a resident until you prove otherwise. Tax rates for 2022-2023 for residents are:

Income Tax Rates for 2022/2023 (Residents)

Income Thresholds Rate Tax Payable

$0 – $18,200 0% Nil

$18,201 - $45,000 19 cents each $1 Over $18,200

$45,001 - $120,000 $5,092 plus 32.5 cents for each $1 over $45,000

$120,001 – $180,000 $29,467 plus 37 cents for each $1 over $120,000

$180,001 and Over $51,667 plus 45 cents for each $1 over $180,000

The United States and Australia do have a tax treaty. The treaty defines terms that are used in the US - Australia tax relationship, and provides rules for deciding which country a taxpayer is resident of. This is important mostly for people who are not sure about their residency. Most of the tax treaty is about property and commerce, and also includes provisions for granting rights to each of the governments to impose taxes on certain forms of income depending on the country from which the income was derived.

Article 22 in the tax treaty sets the rules about double taxation. Note that the treaty has provisions that prevent double taxation on pensions, social security income, and income from annuities received by a resident while in their home country. For example, there may be tax relief for an Australian resident who lives in Australia, but who is a US citizen, on income from an Australian pension. In other examples, there may be taxes on Australian pensions. Don’t hesitate to reflect on these tax tips for U.S. expats in Australia anytime you need more clarity on the subject.