Frederick Jace
As an American working or living in Australia, you have a tax obligation to both countries. While this sounds complicated and time-consuming, tax laws exist that help you meet your obligations to both places without paying more than your fair share. Completing a tax return for one country is hard enough, so we’ve put together several helpful facts that will help you do your taxes in the upcoming tax season as an American working in Australia.
- You Have a Tax Obligation in Both the U.S. and Australia
You read that right. As an American, you can assume you must continue to complete a U.S. tax return every year you live in or work in Australia. Furthermore, you most likely need to complete an Australian tax return. It can be complicated as there are many laws and requirements to know, which is why it’s a good idea to find a tax accountant in Sydney or your nearest major city to help you get both tax returns completed correctly.
- Your U.S. Tax Obligation Depends on Your Australian Residency
If you’re working in Australia on a short-term project, completing your U.S. tax return might be as simple as reporting that income. However, if your Australian residency is long-term, or as you establish more in-depth financial roots in the land down under, you could find yourself in a dual taxation predicament.
In this situation, you have two options:
- Foreign Earned Income Exclusion – If you meet residency requirements, you might be able to exclude your Australian income from your U.S. tax return.
- Foreign Tax Credit – This credit lets you claim any taxes paid to a foreign government.
Most Americans working in Australia benefit more by taking the Foreign Tax Credit, but your tax advisor can help you decide which option is right for you.
- A Tax Treaty Exists Between the U.S. and Australia
The U.S. and Australia have a tax treaty that is supposed to help taxpayers avoid double taxation. This sounds like a great thing, but the U.S. has a Savings Clause written in that essentially lets the country tax its citizens as it sees fit despite the treaty.
- The Australian Government Shares Your Information with the IRS
What this means is that should you fail to file your Australian tax returns, or should you complete them incorrectly, you may be charged fines and penalties. For this reason, you must choose a tax accountant that understands expat taxes.
- Domicile vs. Residency
Whether you end up paying Australian taxes depends on your residency and domicile status. A domicile is your permanent home, while your residency is where you spend most of your time. You can only have one domicile, but you can be a resident of multiple countries.
You become a resident of Australia if your domicile is there or if you have spent more than half the year there without a domicile anywhere else.
- Resident vs. Non-resident Tax Obligations in Australia
Just like in the U.S., the more income you make in Australia, the more taxes you pay. With that said, if you aren’t an Australian resident, you will pay a higher tax rate than that of a resident.
Completing and filing a tax return in the U.S. is challenging enough, but if you work in Australia as an American citizen, you may be responsible for completing a tax return in both countries. Keep the above facts in mind and consult a professional tax accountant to help you file your taxes correctly as an American working in Australia.
