How does moving to Australia affect my US tax obligations?

Published on February 28, 2024
by Clark Stott

Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.

How does moving to Australia impact my US taxes?

Relocating to Australia doesn’t automatically relieve you of your US tax responsibilities. US citizens and green card holders are subject to tax on their global income, regardless of where they live. However, your time abroad may affect your residency status for tax purposes. The moment you establish a home in Australia, you may trigger a shift in your tax obligations.

What's the deal with dual tax residency?

Being a tax resident in both the US and Australia means both countries could tax you on the same earnings. However, it’s not as intimidating as it sounds, thanks to the US-Australia tax treaty designed to prevent double taxation. This agreement lets you use the taxes paid in Australia as a credit on your US tax return, potentially lowering your tax bill back home.

Is filing US taxes still on my to-do list after moving?

Absolutely. Your global income remains of interest to the IRS, even when your home address is now in Australia. All income, deductions, and credits must be reported, just as if you were living stateside.

For Americans abroad, the tax filing deadline mirrors that of domestic filers, typically landing on April 15. But there’s a silver lining for expats: an automatic two-month extension, pushing your 2023 filing deadline to June 17. Need more time? Form 4868 can extend your filing deadline to October 15. Remember, any taxes owed are due by April 15 to dodge interest and penalties, regardless of your filing extension.

Can expats leverage FEIE or FTC to lower US taxes?

Absolutely! As an American expat, you have two powerful tools at your disposal to potentially reduce your US tax bill: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). For 2023, the FEIE lets you exclude up to $120,000 of your earnings abroad from US taxes, provided you have a tax home outside the US and meet certain residency criteria.

The FTC, on the other hand, offers a dollar-for-dollar tax credit for the income taxes you pay to a foreign government, like Australia. This can be a game-changer, especially if you’re paying taxes in a country with higher rates than those in the US.

Do Australian taxes count towards US tax credits?

Yes, they do. The taxes you pay in Australia can help lower your tax obligations back in the US through credits. This arrangement helps ensure you’re not taxed twice on the same income. However, understanding the specifics requires a keen understanding of both US and Australian tax laws, making professional tax advice invaluable.

What are the requirements for FBAR and FATCA?

FBAR Reporting:

If you’re a US person with financial interests or authority over foreign accounts exceeding $10,000 at any point in the year, you’re required to report these accounts through an FBAR filing. This includes a wide range of entities and individuals, from corporations to estates.

FATCA Reporting:

Under FATCA, US taxpayers with certain foreign financial assets exceeding specific thresholds must report these assets on Form 8938, filed alongside their tax returns. The thresholds vary based on your filing status and whether you live in the US or abroad.

But, what if I don’t report?

Ignoring these reporting obligations can lead to hefty penalties:

  • Non-Willful Violations: Penalties can reach up to USD$10,000 (adjusted for inflation) for each oversight, assuming it wasn’t due to intentional neglect.
  • Willful Violations: If the IRS believes you intentionally avoided reporting, you could face penalties up to USD$100,000 (adjusted for inflation) or 50% of the account’s value at the time of the violation, per violation.

In cases of willful neglect, criminal charges, including fines up to USD$250,000 and/or imprisonment, could also apply.

How can I manage my retirement savings wisely across borders?

Living abroad brings a unique set of challenges and opportunities, especially when it comes to retirement savings. If you’re a US expat in Australia, it’s crucial to understand how to navigate the complexities of saving for retirement while complying with the tax laws of both countries. Contributions to American retirement accounts, such as IRAs and 401(k)s, can still offer tax advantages, but eligibility to contribute may be affected by your expat status.

The taxation of investments in both the US and Australia can significantly impact your retirement planning. The US-Australia tax treaty plays a vital role here, potentially offering relief from double taxation. However, the specifics can get complicated quickly, making professional tax advice invaluable. A tax expert can help you understand how to report your retirement savings on both US and Australian tax returns and ensure you’re taking full advantage of available tax benefits.

What happens to my estate when I pass away?

For US citizens and resident aliens, the US taxes the worldwide estates, meaning your global assets are considered when determining estate taxes. Meanwhile, Australia doesn’t levy an inheritance tax, which means your estate won’t face Australian taxes simply because it’s passed on to your heirs. However, any income generated by your estate within Australia could be subject to Australian income taxes.

Given these complexities, it’s wise to seek guidance from a tax professional familiar with the intricacies of both US and Australian tax laws. They can provide clarity on how your estate will be taxed and help you plan accordingly to minimize the tax burden on your heirs. This planning is especially important for ensuring that any benefits from tax treaties are fully leveraged, providing peace of mind and financial security for your loved ones.