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Table of contents:
Australian businesses and investments
Opening a local business in Australia as a U.S. citizen
Before opening a local business in Australia, you must have the right to live and work in Australia. You must apply for the appropriate visa via the Australian Department Home of Affairs website. Moreover, you must decide on your business structure and register your business with the Australian tax authorities.
Types of local business structures in Australia and the U.S. filing requirement
Sole Trader
As a Sole Trader, you are self-employed. If your Sole Trader Business exceeds $75,000, you will be required to register your Sole Trader business for Goods and Services Tax (GST). You must report your self-employment to the IRS via form Schedule C (included in our PREMIUM package).
Company
Like the Sole Trader business, the company is a standard business structure amongst expats in Australia. However, the company offers better protection than the sole trader business structure, as the company is a formal and legal entity separate from its owners or shareholders. The company’s shareholders are only liable for losses up to the amount of their share of ownership in the company. You must report the company to the IRS via Form 5471.
Partnership
A partnership is an association of people or entities running a business together, but not as a company. You must report the partnership to the IRS via Form 8865.
Social Security and pensions
Australian employees are not taxed for United States social security. Because of the U.S. - Australia Tax Treaty (called a Totalization Agreement), self-employed expats in Australia can decide which system either the U.S. Social Security or the Australian system they would rather contribute to. For most Australian residents, participation in government-sponsored retirement plans is limited to superannuation described below.
Australia has a three-pillar pension system:
Pillar I - Public pensions: A tax-financed Age Pension (government-funded pension program), which provides essential benefits (similar to Social Security) for men and women aged 65 and above, if Australian resident's income and assets fall below certain thresholds. In addition to the Age Pension, the government established the Future Fund, financed by budget surpluses and the privatization of Telstra (a telecommunications firm). The Future Fund was created to satisfy unfunded public sector superannuation liabilities.
Pillar II - Occupational pensions: The Superannuation Guarantee (SG) system is a compulsory employer-funded retirement savings scheme. Employers are required to contribute a percentage of their employees' earnings into a superannuation fund. Although this defined contribution system requires a minimum contribution to a superannuation fund, employees (between the ages of 17 and 70) can also make voluntary contributions. Superannuation funds offer a range of investment options, and individuals can choose how their savings are invested.
Pillar III - Personal pensions: It includes voluntary retirement savings accounts (RSAs), personal investments, and Self-Managed Superannuation Funds (SMSFs). RSAs are low-cost pension schemes offered by deposit-taking institutions or life insurance companies, operating under the same tax rules as superannuation accounts. SMSFs allow more control over investment decisions but come with greater responsibility and administrative requirements.
For more information, refer to Taxation of Australian Superannuation Funds in the U.S.
Australian income reporting
The glossary terms below are based on the Tax return for individuals in Australia (2023).
Salary or wages
To report the total amount of the annual gross salary in the Tax Questionnaire:
Open your Tax Questionnaire.
Navigate to the Life & Income > Basic Information TQ section on the left side and click Yes next to I receive payments from an employer.
In the Income > Wages TQ section, click Yes to the question Did you receive payments during the tax year from a non-U.S. employer?
Enter the gross salary amount to the question Gross wages/salary earned with this employer during the tax year? Use the income calculator to convert to a calendar year.
Employer lump sum payments
Lump sum payments you received from your employer for unused annual leave should be reported in the Tax Questionnaire under the same question Gross wages/salary earned with this employer during the tax year?
Employer termination payments
Gratuities, Severance Pay, etc., should be reported in the Tax Questionnaire under the same question Gross wages/salary earned with this employer during the tax year?
Australian annuities and superannuation income streams
Please enter all employer pension contributions, including the Superannuation Guarantee (SG) portion and any other contributions.
In the Tax Questionnaire, navigate to Income > Wages > Did you receive payments during the tax year from a non-U.S. Employer? > Were contributions made to a non-U.S. pension plan (whether yourself or by your employer)? > Did your employer contribute to your pension plan?
Total tax withheld
Income tax is the amount of foreign income tax paid or withheld. It can be utilized as a foreign tax credit to offset U.S. tax liability. To report tax imposed on the particular income type, navigate to Taxes And Deductions > Taxes Paid, and click Yes to the question Did you pay any tax to any non-U.S. country on any of your income this year?
Dividends
To report your dividend income in the Tax Questionnaire:
Navigate to the Life & Income > Income TQ section on the left side and click Yes next to the statement I receive dividend income.
Navigate to Income > Passive Income > Dividends tab at the top and click Yes under the question Did you receive non-U.S. dividends?
Fill in the table.
Partnerships and trusts
Income from a trust and income/loss from a partnership should be reported in the Tax Questionnaire on Income > Corporation & Trust > Entity List.
Personal Services Income or Attributed Personal Services Income
A sole proprietorship is an unincorporated business run by a single person. Personal services income received as a sole proprietor. Attributed Personal Services income is what you pay others to provide services to you. To report it, navigate to Income > Self-employment tab and enter the amount under the question Gross Income from the Self-employment.
Capital gains
Capital gains and losses can be reported under the same question Did you pay any tax to any non-U.S. country on any of your income this year?
Australian financial accounts reporting
Individual bank accounts include savings accounts, checking accounts, and time deposits.
Superannuation (we will determine during tax preparation).
Brokerage accounts, commodity futures, or options accounts.
Insurance policies and annuity contracts with a cash value (i.e., such as a whole life insurance policy).
Business accounts where a U.S. person has a greater than 50 percent interest in the entity.
Real Estate Holding.
Precious metals held directly.
Collectibles.
Financial Account held at a U.S. branch of a foreign financial institution.
For more information, refer to Taxation of Australian Superannuation Funds in the U.S.