As a US citizen residing in Australia, the prospect of investing in Australian shares, property, or perhaps even going into business may sound like an excellent method of expanding your wealth.
But this is the catch: your investments do not only fall under Australian regulations, it is also subject under the Internal Revenue Service (IRS) back in the States.
Why Do US Citizens Living in Australia Have Dual Tax Liabilities?
The US tax its citizens worldwide income even if you’ve spent decades overseas. That is, the IRS still expects you to let them know if you’re receiving dividends on an ASX-listed share, selling real estate in Sydney, or receiving interest from a local savings account.
Australia also taxes you on residency, so you must pay tax locally as well. Fortunately, the US-Australia Tax Treaty and certain IRS provisions can minimize or avoid double taxation, but only if you know how the system operates.
Residency Rules in Australia
Before you can figure out your investment tax obligations, you will need to learn about the Australian tax residency rules and check with the Australian Taxation Office (ATO) to see where you stand
The ATO will determine if you are a tax resident in Australia to determine your scope of tax obligations with them.
Why does this matter?
If you’re considered an Australian tax resident, the ATO will tax you on your worldwide income (including your US investments).
If you’re a non-resident, you’ll only be taxed on your Australian-sourced income.
But under US rules, even if you’re a non-resident for Australian tax purposes, the IRS will still tax your worldwide income unless you renounce US citizenship.
Investment in Australia
1. Australian Shares
If you are an investor in the companies listed in the Australian Securities Exchange (ASX), you can get dividends with franking credits. These credits lower the Australian tax bill on dividends since the corporation has already been taxed.
- In Australia: Dividends are taxed at your marginal tax rate, with franking credits deducting part of the bill.
- In the US: Dividends should be reported and taxed on your US tax return.
2. Real Estate Investments
Australian real estate can be a good investment, but when you consider taxes, it can become tricky.
Rental income: This is taxable in both nations. There are deductions for things like property management fees and maintenance.
Capital gains: If you sell an Australian real property, the ATO and IRS tax the profit. You can apply the Foreign Tax Credit to offset part of the IRS burden.
3. Managed Funds and ETFs
Managed funds and exchange-traded funds (ETFs) in Australia produce income on interest, dividends, and capital gains.
These funds often distribute income annually, and you’ll receive a distribution statement showing the breakdown. You’ll need this for both your Australian and US tax filings.
4. Superannuation
While technically a retirement account, superannuation is often considered an investment. Australia offers concessional tax rates for contributions and earnings inside super.
The ITR could handle it differently, and at times, it would be a foreign grantor trust or a pension plan in the view of the US. This can result in complex reporting, including potential Form 3520 and Form 8938 filing.
What IRS forms are required for reporting?
You will typically need to submit additional IRS forms if you are investing in Australia, including:
- Form 8938 – Statement of Specified Foreign Financial Assets.
- FBAR (FinCEN Form 114) – Mandatory if the aggregate balance of foreign accounts is over $10,000 at any time during the year.
- Form 3520/3520-A – On some foreign trusts, such as some superannuation plans.
Not filing these forms will incur heavy penalties, even if you have no U.S. tax to pay.
How to minimize double taxation
This is how to pay no more tax than is necessary:
- Claim the Foreign Tax Credit (Form 1116) – Offsets US tax by the amount you’ve already paid in Australia.
- Consider the US-Australia Tax Treaty – Provides guidance on which country has primary taxing rights for certain income types.
- Use the Foreign Earned Income Exclusion (Form 2555) – While not as relevant for investment income, it can help for wages or self-employment income.
Common Mistakes to Avoid
- Disregarding ATO residency requirements – This may result in surprise tax assessments on foreign investments.
- Failing to report foreign bank accounts – FBAR fines are not to be taken lightly.
- Forgetting U.S. taxation on Australian tax-free income – For instance, some Australian tax-free capital gains might actually remain taxable in the U.S.
- Forgetting exchange rates – The IRS demands all figures be reported in U.S. dollars, with the proper annual average or transaction date exchange rates.
Bottom Line
It is possible to invest in Australia as a U.S. citizen and profit, but it’s also a balancing act between two tax regimes. Your tax residency status in Australia determines how the ATO will tax you, while your U.S. citizenship puts the IRS back in the mix.
The smartest step? Use a tax professional familiar with both systems so you can invest with confidence, side-step unwanted tax payments, and remain compliant on both sides of the Pacific.