5 Tax Tips for Australia-Based Americans, U.S. Citizen Expats

5 Tax Tips for Australia-Based Americans, U.S. Citizen Expats

5 Tax Tips for Australia-Based Americans

In the past recent years, many Americans have relocated from the United States to live overseas for many different reasons. Sometimes, U.S. taxpayers relocate abroad for work. Other times, it may be for the chance of retirement at a more affordable cost. In addition, sometimes the Taxpayer is not so much relocating as they are going ‘home’ — and their stay in the United States was only meant to be temporary – even if they became a naturalized U.S. citizen. Out of all the different foreign countries across the globe, Australia has become a very common relocation destination for Americans and other individuals who are considered U.S. persons for tax purposes. Let’s look at five (5) Tax Tips for Australia-based Americans and Expats.

Australia Residence and U.S. Worldwide Income

The United States follows a worldwide income tax model for taxpayers who are considered U.S. persons for Tax Purposes. This includes U.S. citizens (USC), even if they live abroad and all of their money is sourced from outside the United States. In other words, USC expats who reside in Australia are taxed on their worldwide income just as if they resided in the United States and worked for a U.S. employer. Noting, Foreign Tax Credits and the Foreign Earned Income Exclusion may apply (to reduce or eliminate any U.S. tax liability)

Australia is a Tax Treaty Country

When the United States has entered into a tax treaty with a foreign country, sometimes Permanent Residents and other residents (excluding USC) may qualify to be treated as a foreign person for tax purposes. This means they file a Form 1040NR instead of a 1040 and only pay U.S. tax on their U.S.-sourced income. Australia and the U.S. have entered into a bilateral tax treaty.

Superannuation Income and U.S. Tax

Since there is a tax treaty between the U.S. and Australia, it impacts how Superannuation may be taxed. Unfortunately, the treaty is silent on the issue of Superannuation — so the generally accepted tax treatment (excluding SMSF and Public Superannuation):

• • • Employer contributions are taxable and not deductible (such as with a 401K).

    • The growth within the Super is non-taxable.

    • Distributions are taxable as well (LPRs/Residents may qualify for a treaty election)

Foreign Accounts are Reportable to the IRS

 Taxpayers living in Australia may also have to report their foreign bank and financial accounts to the IRS if they meet the threshold requirements for doing so. Common types of reportable accounts/assets include:

• • • Bank Accounts

    • Investment Accounts

    • Superannuation

    • Mutual Funds

    • ETFs

    • Stock

    • Insurance Policies

    • Rental Property

FATCA Agreement with the U.S. 

The U.S. and Australia have entered into a FATCA Agreement (Foreign Account Tax Compliance Act). This means that Foreign Financial Institutions located in Australia do report U.S. Taxpayer accounts and account-related income to the U.S. Government. Here is a link to the Australia FATCA Agreement.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.