It is important for Australians moving to the USA for work-related purposes to understand their tax obligations to avoid stressful encounters with tax authorities in the future. In this USA tax brief for Australian expats, we shed light on the tax obligations of Australians working in the USA.
Firstly, if you are an Australian expat, it is essential to find out which country you are a tax resident of.
A tax resident of Australia is an Australian resident who is eligible to pay taxes on all their global income (income from all sources). Moving abroad, say to the USA, does not mean that you are no longer a tax resident of Australia.
The Australian Tax office (ATO) uses various tests and measures to determine if an individual is a tax resident of Australia or not; for example, if you have lived overseas for more than two years or if you have obtained a permanent address overseas.
Similarly, in the USA, US foreign nationals with permanent residence immigrant Visas in addition to those that have been in the USA for over 183 days are regarded as resident aliens. Just as US citizens, a resident alien is liable to pay tax on their global income (income from all sources). However, non-resident aliens in the USA are taxed only on their income sourced in the USA.
So, will I be taxed both in the USA and Australia?
This question is best answered by the Australia-USA Tax Treaty. This treaty between the two countries helps avoid double taxation in both countries.
(a) In case one is considered as an Australian resident for Australian tax purposes (under Australian law), and a US resident for US Tax purposes (under US law), the tax treaty provides a guide to ensure that they are a tax resident of one country. This means they only pay tax for one country.
(b) Besides, the treaty allocates taxing rights over certain categories of income between the two countries should you be earning from both of them.
All in all, if you are an Australian expat you must find out if you are a resident alien or non-resident alien in the USA. Secondly, you must exploit the Australian-US Tax Treaty to avoid double taxation.
Need a little more help? Speak to us at Expat Tax Services today. We are experts in handling expat tax returns Australia wide – and beyond.