Tax Issues for Australian Expats moving to the United States

When relocating to the United States to live or for work, there are numerous US and Australia’s tax issues that should be considered in advance of your move. The key tax issues are examined more below.

1. Tax Residency Status

When moving to the United States, determining your tax residency status is crucial as this will determine where you pay tax (the US or Australia), and the amount of tax payable. If the US considers you a tax resident, you must pay taxes on your global income. Let’s delve into this in more detail:

US Domestic Rules

Substantial Presence Test

If someone meets the Substantial Presence Test requirements, they qualify as a US resident. To pass this test for the calendar year, the individual must fulfill the following requirements:

1. The individual is physically present in the U.S on at least 31 days during the current year; and
2. The individual is physically present in the U.S. on at least 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
   • All the days you were present in the current year; and
   • 1/3 of the days you were present in the first year before the current year; and
   • 1/6 of the days you were present in the second year before the current year.

Green Card

If you possess a Green Card, you become a Lawful Permanent Resident of the United States for tax purposes.

Australia and US Tax Treaty

Under the Tax Treaty between Australia and the US, where an individual is a tax resident of both countries, the individual will be deemed to be a resident of the country in which they maintain their permanent home.

Generally, a permanent home could include an apartment or house rented out that is available to the individual for the duration of their stay in the US.

The tax treaty tie-breaker rule between Australia and the US requires you to consider the location of your permanent home.

2. Consider the local state tax laws

When moving to the US, it is important to consider not only federal taxes, but also state taxes.

For example, under the California State residency rules, Australian residents do not have access to the exemption made available under the Australia-US tax treaty.

Instead, an individual who visits California for anything other than a temporary or transitory purpose will be consider a legal resident subject to the CA tax laws.

Visits that can generally be sufficient in resulting in an individual adopting CA residency status include:

• Indefinitely residing in California;
• Extended stays (generally greater than 6 months) in California; and
• Employment that requires an extended period of time to accomplish.

3. Taxation of your Australian Superannuation

The US tax treatment of Australian superannuation is a very complex area of law which is subject to much disagreement.

Many Australian expats are not aware that their Australian super can be subject to tax in the US. Thus, Australian expatriates might need to fulfill their U.S. tax obligations for their Australian superannuation contributions and earnings, which they must report in their U.S. tax return.

Whether or not your Australian superannuation contributions and earnings are subject to US tax will very much depend on the individual circumstances of each case.

In short, the IRS has not determined whether to treat Australian superannuation as social security or a pension, and the Australian and US tax treaty has not adequately addressed this issue.

We have the expertise in this area of law to advise you of the correct treatment of your Australian superannuation for US tax purposes.

4. Summary

Hence, it becomes crucial to engage in thorough tax planning when relocating to the US. If you qualify as a tax resident in the US, the US may tax your Australian assets, income, and superannuation.

Disclaimer 

This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario.

Please do not hesitate to get in contact with us to discuss your circumstances further and we would be happy to assist you further.