- 1 Is Income from Australia Taxable in the US
- 2 US Worldwide Income and Reporting Model
- 3 Earned Income from Australia
- 4 Australian Rental Income
- 5 Australian Dividend and Capital Gain Income
- 6 How is Australia Superannuation Taxed & Reported?
- 7 Offshore Amnesty Program Summary
- 8 Can I Just Start Filing/Reporting This Year Instead?
- 9 Our International Lawyers Represent Clients Worldwide
Is Income from Australia Taxable in the US
Is Income from Australia Taxable in the US: IRS Tax Returns can be incredibly complicated for US Taxpayers who have income from abroad — and are unfamiliar with the US tax system. This is a very common situation for US taxpayers who previously resided in Australia and still have income generated from Australian sources — even though they are now a US person. There are many different potential tax consequences for US persons with income generated from Australia. In addition to the tax consequences, the US also requires US persons with assets and accounts in Australia to disclose their foreign accounts, assets and investments on various international information reporting forms. If a person from Australia is out-of-compliance for taxes and reporting, try not to worry too much — since there are various offshore amnesty programs available to assist with safely getting into tax compliance with the Internal Revenue Service. Let’s take a look at some of the more common types of foreign income and assets from Australia that would be taxable/reportable in the United States:
US Worldwide Income and Reporting Model
The United States is one of only a few countries that follows a Citizen-Based Taxation (CBT) model instead of a Residence-Based Taxation (RBT) model. It is also important to understand from the get-go, that U.S. citizens for CBT is not limited to citizens per se — it also includes permanent residents and foreign nationals who meet the Substantial Presence Test. Worldwide income also includes global asset reporting on international information reporting forms such as the FBAR and Form 8938.
Earned Income from Australia
When a US Person earns income from employment or consulting in Australia, then that income is taxable in the United States on their U.S. tax return. But. whether or not they earn that income while living abroad or while living in the United States will impact the different tax rules. To avoid having to pay into both Social Security systems — the totalization agreement between the US and Australia impacts contribution requirements to the superannuation — along with contributions to this Social Security in the United States. In addition, it is not uncommon for taxpayers to qualify for the Foreign Earned Income Exclusion (if they reside abroad) or Foreign Tax Credits (whether they reside abroad or in the United States)
Australian Rental Income
Even though the real estate property is located in Australia, a US person with rental income from Australia still reports that foreign rental income on their U.S. tax return. And, even though the property is located abroad, they are still allowed to claim the same deductions such as mortgage interest. If it is a rental property they can take other deductions as well, including depreciation.
*Noting, the rules for determining depreciation in the United States are different than Australia.
Australian Dividend and Capital Gain Income
Dividend and Capital Gain income generated in Australia is taxable in the United States as well for US Persons. If taxes have already been paid in Australia, the US person can generally claim the foreign tax credit — but franking credits typically will not apply since they are not paid directly by the individual.
How is Australia Superannuation Taxed & Reported?
Since superannuation is not specifically identified in in the US/Australia tax treaty, there are not definitive rules on how the superannuation is treated. Tax and reporting treatment of Supers is highly complex. We have written numerous articles on matters involving U.S. tax and reporting of Australian superannuation — which go far beyond the introductory scope of this article.
Offshore Amnesty Program Summary
The Offshore Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.
Some of the more common programs, include:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures
- Reasonable Cause
Can I Just Start Filing/Reporting This Year Instead?
No, unless the current year is the first-year you had a Tax or Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as a Quiet Disclosure. The IRS has warned taxpayers that if they get caught in a FBAR Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
Our International Lawyers Represent Clients Worldwide
Golding & Golding’s Tax and Legal team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm for assistance.