Expat Taxes - Working in Australia

[JohnH]

A long-time client and close friend is moving to Australia with his wife to begin work in Oct of this year.  They will initially be on a 2-year work visa in Australia.   I have no experience in this area and am advising them to seek a tax pro in Australia who is knowledgeable about expat tax issues. He does already have some trusted leads on choosing someone once they arrive there. 

I do know that Australia taxes income on a FY ending Jun 30, they will also be taxed by the US on worldwide income, and there are some options they will have in utilizing credit for foreign taxes paid, partial income exclusion, etc.  I also know that the handling of the part-year 2019 US return is different than the full-year in 2020.  Have read a few other things but don't really know much else to tell them, aside from being careful to file the FBAR each year and to make a wise choice in selecting a tax advisor.

I know this is a vague question, but does anyone have additional thoughts on things they should be aware of, such as potential tax traps, planning possibilities, etc?  I would appreciate any suggestions that I can pass along to them as a courtesy.  

[Catherine]

What I have generally found is that excluding foreign income from US income (Form 2555) is generally, but not always, better than foreign tax credits (Form 1116) and back when there was no limitation on other income taxes, Sch A deduction of the foreign tax paid. 

Tax treaties need to be read, and the older ones are generally more straightforward (before the lawyers turned them into gobbledygook written in legalese).

The forms are all relatively straightforward, but the US return does need to be calculated at least in the first two ways, in case you've run in to the oddball case (and they are never obvious) where 1116 works better than 2555.

[Gail in Virginia]

And they will continue to be domiciliary residents of NC, I assume, and will therefore continue to file a NC tax return based on their US Tax return.  The fact that they are no longer resident in the state of NC will most likely be irrelevant unless they establish residency in another state.  Or that used to be the way the states rolled - someone may have better information than I do.

[Catherine]

5 hours ago, Gail in Virginia said:

Or that used to be the way the states rolled

Depends on the state.  Best way is to establish domicile in a no-income-tax state.

[JohnH]

Catherine & Gail: Thank you both for your comments and excellent suggestions.  I'm going to pass this along to the client. 

 

[Catherine]

On 9/6/2019 at 11:00 PM, JohnH said:

Catherine & Gail: Thank you both for your comments and excellent suggestions.  I'm going to pass this along to the client. 

 

Hawaii is a common state to establish domicile for expats.  Florida is another one.  Or any state with no income tax, really.

[DANRVAN]

As Catherine and Gail mentioned be sure to get advise on state taxes,  some preparers of federal foreign taxes are not familiar with individual state taxes.

[DANRVAN]

23 hours ago, Catherine said:

Hawaii is a common state to establish domicile for expats.  Florida is another one.  Or any state with no income tax, really.

Oregon is very generous.  Oregon residents living in a foreign country may be taxed as foreign nonresidents if they meet the “physical presence” test or
the “bona fide residence” test.  In which case their foreign income is not taxed by Oregon.