Tax guide for Americans in Australia

Australia, with its beautiful beaches, sunny weather, and laid-back lifestyle, is a top choice for US expats. However, the excitement of living Down Under also brings the challenge of navigating both US and Australian taxes.

Whether you're figuring out how taxes work in your new home or managing your US tax obligations in Australia, this guide is here to simplify the process for you.

Australia: tax overview

Understanding Australian residency for tax purposes

Determining your tax residency status in Australia is key to understanding your tax obligations.

Note that tax residency is different from general residency – the latter refers to your status as a legal resident, while tax residency specifically impacts how you’re taxed by the Australian government.

Who qualifies as a tax resident in Australia?

Your status largely depends on your individual situation, but there are four tests to guide you. If you meet the criteria for any of them, you’ll be considered a tax resident:

1. Resides test: If you live permanently or for a significant duration in Australia and have a settled or usual home in the country, you are considered a resident.
2. Domicile test: You are deemed a resident if your primary permanent domicile or home is in Australia.
3. 183-day test: Being in Australia for at least 183 days qualifies you as a resident. However, an exception exists if you can prove that your usual place of residence is outside Australia and you have no intention of settling in Australia.
4. Commonwealth Superannuation Fund test: If you are employed by the Australian government or an Australian company and are eligible to contribute to specific superannuation schemes, you are considered a resident.

If you don't meet any of these criteria, you are generally considered a non-resident for tax purposes.

Pro tip. You can use these Australian Taxation Office (ATO) tools to work out your tax residency based on your specific situation.

Australian tax residency benefits

Becoming a tax resident in Australia comes with several benefits that can make life in the country more convenient.

Here are some of the key advantages of being a tax resident in Australia:

• Medicare: Tax residents can access Australia’s public healthcare system, Medicare. This provides subsidized or free medical services, making healthcare more affordable.
• Tax-free threshold: The first $18,200 of your annual income is not taxed, which can provide significant savings compared to non-residents.
• Benefits: You can be eligible for various government benefits and welfare programs, such as unemployment benefits or family tax benefits.
• Tax rate: You could be taxed at a lower rate compared to non-residents on the same amount of income.
• Property: Face fewer restrictions on purchasing property compared to non-residents.
• Superannuation: If you’re a tax resident, your employer will make contributions to your superannuation (retirement fund). These contributions are not taxed at the time they are made, providing you with tax-deferred savings for retirement.

Advantages of being a non-resident for tax purposes in Australia

Being a non-resident for tax purposes allows you to live in Australia for part of the year, but you’re not bound by Australian tax rules for your worldwide income. This flexibility makes it easier to spend time in both Australia and the US without the complications of being a full-time tax resident.

Other advantages of being a non-resident:

• Taxed only on Australian-sourced income: If you’re a non-resident, any income you earn outside Australia is generally not subject to Australian taxes. This can be beneficial if you have significant income from the US or other foreign sources.
• No Medicare levy: Non-residents are not required to pay the Medicare levy, a 2% tax on taxable income that helps fund Australia’s public healthcare system.
• Foreign investments taxation: As a non-resident, you may be able to avoid certain taxes related to investments, particularly when the income is sourced outside of Australia.
• Avoid contributions to superannuation: If you’re a non-resident for tax purposes, you may not be required to make contributions to superannuation.

Australian tax system overview

Australia has a progressive tax system for individuals and taxes its residents on their worldwide income. This means that any income earned outside of Australia, including employment income, business income, and investment income, must be declared on the Australian tax return.

US citizens and green card holders living in Australia must file US taxes annually, reporting their worldwide income.

Personal income tax (PIT) rates

The income tax rates for Australian residents are as follows (all amounts in AUD) – the table applies to fiscal years 2024-25, i.e. until June 30, 2025:

 

For foreign residents, the tax rates are:

Source: Australian Taxation Office (ATO).

Capital gains tax (CGT)

Capital gains tax (CGT) in Australia applies to the sale of a capital asset, such as real estate or shares. It's the difference between what it cost you to acquire the asset and what you received when you disposed of it.

These gains are taxed as part of your income tax and not as a separate tax, meaning the rate will depend on your overall taxable income.

Residents are subject to CGT on their worldwide assets, while non-residents are only subject to CGT on Australian assets.

Dividend, interest & rental income tax

In Australia, dividends paid to shareholders by Australian companies are often accompanied by franking credits. These credits represent the tax the company has already paid.

This system prevents double taxation, as shareholders can use these credits to offset their personal tax liabilities. For Australian tax residents, franked dividends are added to their taxable income, and the franking credits are applied against their tax liabilities.

Non-residents are not taxed on franked dividends, but unfranked dividends are subject to withholding tax.

Interest income is considered taxable income in Australia. For tax residents, this income is taxed at their marginal tax rate. Non-residents are subject to a final withholding tax on their Australian-sourced interest income.

Rental income derived from property located in Australia is taxable. Expenses related to the property, such as mortgage interest or repairs, can be deducted from the rental income to reduce the taxable amount. Non-residents earning rental income from Australian property are taxed at non-resident rates.

Superannuation and retirement taxation

Superannuation in Australia is akin to a mandatory 401(k) program. While employee contributions are voluntary, employers are required to contribute 9.5% of base wages for employees earning a salary of more than AUD 450 per month.

From the US tax perspective, most super funds are classified as foreign trusts or PFICs – which means they’re subject to complex rules, reporting requirements, and often unfavorable tax treatment.

Corporate tax

Corporations operating in Australia are subject to a flat corporate tax rate. Companies with an annual revenue of under AUD 2 million are taxed at 28.5%. These taxes must be prepaid quarterly based on estimated liabilities.

Other taxes: GST, stamp duty, property, and inheritance

Australian GST

The federal government in Australia levies a goods and services tax (GST) at a rate of 10%.

This GST is a value-added tax (VAT) applied at each level in the manufacturing and marketing chain. It covers most goods and services, with registered suppliers receiving credits for GST on inputs acquired to make taxable supplies.

Some supplies, such as food (with exceptions), exports, health, and educational supplies, are GST-free.

Residential rents and the second or subsequent supply of residential premises are not subject to GST.

Inheritance, estate, and gift tax

Australia does not impose inheritance, estate, or gift taxes. However, there are special tax rules for the transfer of assets to a beneficiary from a deceased estate for capital gains tax purposes and the transfer of superannuation entitlements to beneficiaries of a deceased person.

Property taxes

All states and territories in Australia impose land taxes based on the unimproved value of the land, with certain exemptions. Municipal councils also levy rates and charges on land within their jurisdictions.

Some Australian states also impose a duty or land tax surcharge on certain Australian real estate holdings of a foreign person.

Additionally, there's an annual vacancy fee at the federal level for foreign owners of Australian residential property that remains vacant for at least half a year.

Stamp duty

All states and territories in Australia impose stamp duty on various transactions or documents, such as real property conveyances, motor vehicles, and insurance policies.

The imposition of duty on share transfers involving unlisted entities varies from state to state. For instance, the New South Wales government has exempted purchases of new or used battery electric and hydrogen fuel cell vehicles that cost up to AUD 78,000 from stamp duty.

Certain types of income are exempt from tax in Australia. Common examples include certain government pensions and payments, some scholarships, and payments from specific disability trusts for care and accommodation.

Tax deductions for expats living in Australia

As a US expat in Australia, you can claim various tax deductions to reduce your taxable income.

For work-related expenses, you can deduct costs directly tied to your job. If you undertake self-education related to your current job, you can claim course fees and travel costs for education. Fees paid to tax agents for preparing and lodging your tax return are also deductible.

Donations to registered Australian charities of $2 or more can be claimed as deductions.

When are Australian taxes due?

You are required to file or lodge your Australian tax return by October 31.

If you file with the help of registered tax agents, you have to register as one of their clients by that same date. Once you are registered, you get an extension until June 5 of the next year.

Some of the most common tax forms you may need to file your Australian tax return include:

• NAT 2541: Individual tax return for residents.
• NAT 1040: Lodgement form for non-residents, if applicable.
• NAT 2679: Business activity statement (BAS) for self-employed individuals.

Taxpayers with complex finances, self-employed individuals or those with foreign income, may need to provide additional documentation. We recommend consulting a local tax professional to ensure you're completing all necessary forms accurately and timely.

US tax obligations for Americans in Australia

As we mentioned earlier, US citizens and green card holders are required to file US taxes even if they reside abroad. However, there are provisions like the foreign tax credit (FTC) and the foreign earned income exclusion (FEIE) that help prevent double taxation.

The tax filing threshold for US citizens abroad generally depends on income level and filing status. For example, if you are single, you must file if your income exceeds $14,600 (for 2024 taxes).

The tax filing deadline is April 15, but if you live abroad, you get an automatic two-month extension to June 16 (in 2025). If you need even more time, you can request an extension until October 15.

It’s important to note that the US tax year follows the calendar year (January 1 to December 31), while Australia’s financial year runs from July 1 to June 30. This discrepancy can create challenges when filing taxes in both countries.

US expats in Australia may need to file the following tax forms:

• Form 1040 – The standard income tax return required for all US citizens, regardless of location. The typical filing deadline is April 15, but expats receive an automatic extension to June 16 (in 2025).
• Form 8938 (FATCA report) – Required if foreign assets exceed $200,000 on the last day of the tax year or $300,000 at any point ($400,000 and $600,000 for married taxpayers filing jointly).
• Form 2555 (Foreign Earned Income Exclusion FEIE) – Allows expats to exclude up to $126,500 (2024 limit, adjusted annually) of foreign income from US taxes.
• FBAR (FinCEN Form 114) – Required if the combined value of foreign bank accounts exceeds $10,000 on any day during the tax year. It must be filed separately from your tax return.

US–Australia tax treaty

The US–Australia tax treaty helps US expats avoid paying taxes on the same income in both countries. The treaty outlines which country has the right to tax various types of income and provides tools to reduce your tax burden and offset US taxes with taxes you’ve paid in Australia.

The treaty covers a wide range of income, including employment, investments, real estate, and pensions, and provides tax relief on US dividends, interest, and royalties. To claim these benefits, you’ll need to file specific forms like Form 8833 for treaty-based claims and Form 1116 for the FTC.

Pro tip. Australian superannuation funds are treated as foreign trusts for US tax purposes. If you’re unsure how your super affects your US taxes, we can walk you through it – drop us a line.

Totalization agreement between Australia and the US

Australia has a social security system in place, similar to the US, to provide for its citizens and residents. For US expats living in Australia, there might be confusion regarding which social security system they should contribute to.

To address this, the US-Australia totalization agreement has been established to set rules for social security contributions:

1. If a US company assigns an individual to work in Australia for less than five years, the individual will contribute to the US social security.
2. If the assignment in Australia exceeds five years, the individual will contribute to the Australian social security system.
3. If a US expat is employed by an Australian employer in Australia, they will contribute to the Australian social security system.
4. Self-employed Americans residing in Australia have the option to contribute to either the US or Australian social security system.

Stay compliant with US expat taxes in Australia

If you're an American expat in Australia or planning to move there, managing your US tax obligations can be overwhelming. Let Taxes for Expats take the stress out of the process. With over 20 years of experience preparing taxes for Americans in Australia, we provide personalized guidance to keep you compliant – schedule your free discovery call today.