Am I a US or Australian Tax Resident? Residency and the Treaty, Explained for Aussies in the USA

Of all the questions an Australian moving to the United States needs to answer, “which country am I a tax resident of?” is the one that decides almost everything else. Get it right and the rest of your tax life has a logic to it. Get it wrong, or worse, never actually ask the question, and you can end up with two tax offices both convinced you belong to them, which is exactly as fun as it sounds.

This article digs into that one question in detail: how Australia decides if you’re still a resident, how the US decides if you’re one of theirs, what happens when both say yes, and how the Australia-US tax treaty sorts it out. For the broader picture (superannuation, US managed-fund traps, the Australian exit tax, the stacked layers of US tax), see our fuller guide to the top US tax issues for Australian expats. Here, we’re focused on residency, because it’s the foundation the rest is built on.

Why residency is the whole ballgame

Both countries generally tax residents on worldwide income. Non-residents are taxed more narrowly, but not always identically: the US taxes non-resident aliens on US-source income and income effectively connected with a US trade or business, while Australia generally taxes foreign residents on Australian-source income and certain amounts that stay in the Australian tax net (such as gains on Australian real property). So your residency status is the switch that decides whether your Australian salary, your US wages, your investment income and your capital gains are taxable in one country, the other, or (before relief) potentially both.

And here’s the crucial part most people get wrong: you can be a tax resident of both countries at the same time. Australia’s rules and the US rules are separate machines, each asking its own questions, and it’s entirely possible to answer “yes” to both. That’s not a paradox or a mistake; it’s a recognised situation called dual residency, and the treaty exists precisely to resolve it. But you have to know you’re in it first.

How Australia decides if you’re still a resident

Let’s kill the most common myth straight away. Moving to the US does not automatically end your Australian tax residency, and there’s no rule that says “two years overseas and you’re out.” You’ll see that two-year figure repeated in older expat advice; it’s a misunderstanding. Australian residency is a question of fact, tested against your circumstances, not a stopwatch.

The ATO applies four tests, and you only need to satisfy one to be a resident (the current ATO view is set out in Taxation Ruling TR 2023/1):

• The “resides” test (the ordinary-concepts test). This is the main one: do you, in the ordinary sense of the word, still reside in Australia? It looks at the whole picture of your life, your family’s location, your home, your employment, your assets, your intentions, and your physical presence. Someone who moves to the US permanently, with their family and their life, will generally stop residing here. Someone who heads off for a defined stint but keeps the family home, the kids in Australian schools and a clear plan to return may well still be residing here despite the distance.
• The domicile test. If your permanent legal home (your “domicile”) is Australia, you’re a resident unless the ATO is satisfied your permanent place of abode is outside Australia. You don’t need to buy a home overseas, and a rented apartment can be part of a genuine overseas life. The question isn’t whether you found somewhere to sleep; it’s whether you’ve definitively abandoned Australia AND you’ve genuinely set up a permanent place of abode outside Australia.
• The 183-day test. If you’re physically in Australia for 183 days or more in an income year, you can be a resident, unless your usual place of abode is overseas and you don’t intend to take up residence here. This one mostly catches people coming in, not those heading out.
• The Commonwealth superannuation test. A narrow test that applies only to certain Australian government employees who are members of specific Commonwealth super schemes (and their families). It won’t catch you just because you have super.

Notice that none of these is “have you been gone two years?” Citizenship doesn’t decide it either. We go through the detail, and the traps, in our guide to being an Australian resident for tax purposes. The headline: breaking Australian residency is about genuinely cutting your ties, not just clocking up time on the other side of the Pacific.

How the US decides if you’re a resident

The US sorts non-citizens into “resident aliens” (taxed like US citizens, on worldwide income) and “non-resident aliens” (taxed only on US-source income and income effectively connected with a US business). You become a resident alien by meeting either of two tests.

The first is the green card test. If you’re a lawful permanent resident (you hold a green card), you’re generally treated as a US tax resident. The start date isn’t always the day the card is granted, though: if you receive it while outside the US, your residency generally begins when you first enter the US holding that status, and once you have it, it continues until it’s formally abandoned, revoked or judicially terminated.

The second is the substantial presence test, which is a weighted day-count, not a simple tally. You meet it if you’re present in the US for at least 31 days in the current year and at least 183 days across a three-year window, counting all your days this year, one-third of your days last year, and one-sixth of your days the year before. So you can trip into US residency well before you’ve spent 183 days there in a single year. There are exceptions (certain visa categories can have their days excluded, and there are rules for medical conditions and days in transit), and a “closer connection” exception can apply in some cases for people under 183 days in the current year who keep a stronger tie to another country. The point is that the day-counting is genuinely fiddly, and worth doing carefully rather than in your head.

The big one: what if both countries call you a resident?

Here’s the scenario that catches people. You move to the US, trip the substantial presence test, and become a US resident alien, while back home you haven’t genuinely cut your ties, so you’re still an Australian resident too. Now both countries want to tax your worldwide income. This is where the Australia-US tax treaty earns its keep, through a “tie-breaker” in Article 4.

The tie-breaker is a sequence, applied in order, and you stop the moment one step gives a clear answer. The order in the Australia-US treaty is worth setting out precisely, because it’s not quite the textbook sequence you might expect:

1. Permanent home. You’re treated as a resident of the country where you have a permanent home available to you. If that’s only one country, you stop here.
2. Habitual abode. If you have a permanent home in both countries (or in neither), the treaty next looks at where you have an “habitual abode,” broadly, where you actually, regularly live, judged by the frequency, duration and regularity of your stays.
3. Centre of vital interests. If habitual abode doesn’t settle it (you habitually live in both, or neither), it comes down to the country your personal and economic relations are closer to, your family, work, business and assets, with your citizenship taken into account in weighing that connection.

That order matters. Most treaties, and the OECD model, run permanent home, then centre of vital interests, then habitual abode. The Australia-US treaty flips the last two, putting habitual abode before centre of vital interests. It also, unlike some treaties (the Australia-New Zealand one, for instance), has no standalone “nationality” tie-breaker step; citizenship only feeds into the centre-of-vital-interests weighing. If you’ve read about how these tie-breakers work elsewhere, don’t assume the generic order applies here; this treaty has its own.

One thing the tie-breaker does not do is erase your obligations under each country’s domestic law. It decides which country you’re a resident of for treaty purposes; the treaty articles then work through how each type of income is taxed and how double taxation is relieved. Sometimes one country gets exclusive rights to a category of income, sometimes both can tax with relief given by one side, so “primary taxing rights” is useful shorthand rather than a precise promise. Either way, you may still have to lodge returns, disclose income and actively claim the treaty position. On the US side, a dual resident claiming treaty residence in the other country generally files Form 1040-NR with Form 8833 attached and computes tax as a non-resident alien; the separate “closer connection” exception, where it applies to people under 183 US days, is dealt with on Form 8840. The treaty is a referee, not a magic wand.

The sting in the tail: citizens, green cards and the saving clause

This is the part that genuinely surprises people, and it has to be split into two buckets, because US citizens and green card holders are not the same problem.

First, US citizens. The Australia-US treaty contains a “saving clause.” In broad terms, it lets the United States tax its own citizens as if the treaty had never been signed, subject to specific exceptions. So a US citizen living in Australia generally cannot use the treaty tie-breaker to switch off US citizenship-based taxation. The US taxes its citizens on worldwide income wherever they live, and the saving clause preserves that even against the treaty. The IRS doesn’t lose interest just because you’ve found better weather.

Second, green card holders, where the position is genuinely different. A lawful permanent resident is a US tax resident under domestic US law. But a green card holder who is also a resident of Australia under Australian law may, in the right case, use the Article 4 tie-breaker to claim treaty residence in Australia. That generally means filing Form 1040-NR with Form 8833 attached, and if it’s accepted, the person is treated as a non-resident alien for working out their US income tax for the relevant period. So, contrary to a common belief, a green card holder can sometimes tie-break their way to being taxed by the US only as a non-resident.

But this is emphatically not a casual move. The person can still be treated as a US resident for other purposes, and crucially, a “long-term resident” (broadly, someone who held a green card in at least 8 of the last 15 tax years) who claims treaty residence in Australia can trigger the US expatriation tax rules under section 877A, along with Form 8854. In plain English: for a long-term green card holder, the treaty can be a door, but it may have an alarm wired to it. So the honest summary is this: US citizens generally can’t treaty-tie-break their way out of US worldwide taxation; green card holders sometimes can, but doing so needs proper US filing and a careful check of the expatriation and reporting consequences first. This is not a place for brave guessing in a spreadsheet.

Foreign-asset reporting is its own headache and follows its own rulebook, separate from all this. US citizens generally stay in the US reporting net, including FBAR (for foreign financial accounts over the threshold) and, where its thresholds are met, FATCA’s Form 8938. For treaty non-residents the picture differs: a green card holder who validly claims treaty residence elsewhere may get a carve-out from Form 8938 for the relevant period, but FBAR can still apply, and Form 8833 (and possibly Form 8854) may be in play. Different forms, different rules, same headache. The treaty can change the income tax calculation without making the information-reporting obligations politely disappear.

What flows from getting residency right

Once you’ve nailed down your residency on both sides, the rest starts to fall into place. If you’re a US resident for both domestic and treaty purposes, the US generally taxes your worldwide income, and Australia generally shifts to taxing only what it’s still entitled to under its own law and the treaty, such as Australian real property and certain Australian-source income. If the treaty treats you as Australian-resident, Australia generally has the broader residence-country claim, while the US may still tax US-source income and income effectively connected with a US business, and for US citizens the saving clause can preserve broader US taxing rights regardless. For green card holders, it depends on whether a treaty non-resident position is validly claimed and what that claim triggers. Either way, where the same income can be taxed by both, relief generally comes through a foreign tax credit (the foreign income tax offset on the Australian side, the foreign tax credit on the US side), which prevents genuine double taxation but is limited and technical, and doesn’t simply hand you the lower of the two rates.

The reason we keep hammering residency is that every one of those downstream questions, how your salary is taxed, what happens to your investment income, how your superannuation is treated, whether your Australian shares attract US tax, depends on the residency answer underneath it. Build on the wrong foundation and the whole structure is off. We cover those downstream issues, especially the superannuation and managed-fund traps that catch Australians hardest, in our guide to the top US tax issues for Australian expats.

The bottom line

Residency is not a box-ticking afterthought; it’s the single most important tax decision you make when moving to the US, and it’s one of the easiest to get quietly wrong. Work out your Australian position against the four tests (and don’t fall for the “two years and you’re out” myth). Work out your US position under the green card and substantial presence tests. If both say resident, apply the treaty tie-breaker in its actual order: permanent home, habitual abode, then closer personal and economic relations. Then separate the two buckets: US citizens generally stay caught by US citizenship-based taxation thanks to the saving clause, while green card holders may be able to claim treaty residence in Australia in the right case, but doing so can require Form 1040-NR and Form 8833, can leave other reporting alive, and can trigger section 877A expatriation consequences for long-term residents.

Done properly and early, ideally before you leave, this is straightforward and saves you a great deal. Done late, or not at all, it’s the kind of thing that surfaces a couple of tax years later with interest attached. It’s genuinely worth getting a cross-border specialist to map it for your specific facts.

Not sure which side of the line you’re on?

This is exactly what we do. We help Australians moving to (and living in) the US work out their residency on both sides, apply the Australia-US treaty correctly, and coordinate the Australian and US filing so you’re not paying more than you should, or walking into a dual-residency mess. We work remotely with expats all over the world, and our fee is always an upfront quote.

Book an appointment with our specialist team today, ideally before you board the plane. Cheaper than the cleanup, every time.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. It describes aspects of the US tax system and the Australia-US tax treaty for general context; US rules are administered by the IRS under US law, which changes over time, so confirm your position with a qualified US tax adviser. Your outcome depends on your specific circumstances, your residency on both sides, and how the treaty applies to you. Speak to our specialist expatriate tax team today, or to another registered tax agent, before acting.