This is a topic that I had fretted over quite a bit, as Australia has high income tax rates as well as a 10% value-added tax for most goods and services. I'm a self-employed IT consultant with clients in the USA and none in Australia. I'm also receiving U.S. Social Security income.
Important things I learned are:
1. The U.S. is the only major nation that taxes its citizens on their worldwide income no matter where they live (it shares the company of North Korea and Libya in this regard). Therefore even though permanently residing in Australia I am obliged to file tax returns in both countries every year.
2. Because Australian tax rates are high I opened a "superannuation" account that lets me squirrel away up to $25,000 every year at only a 15% tax rate and claim it as a deduction. This is basically a retirement savings plan where I can later withdraw funds with no further tax consequence; sort of like a U.S. Roth IRA that also has a partial tax benefit for contributions.
3. U.S. Social Security benefits are not taxable in Australia, in accordance with a tax treaty:
- Tax Treaty concerning double taxation (See Article 18)
4. U.S. Social Security taxes are a burden that can be eliminated by virtue of having superannuation available in Australia, even for the self-employed. For someone like me who has already reached full retirement age this is the best news of all! Others should tread carefully.
- U.S. International Social Security Agreements
- Agreement Between The United States And Australia
- Foreign Income - Schedule SE - Social Security Agreement - Expatriate
6. Both the U.S. and Australia provide for a foreign tax credit (Australia calls it a "foreign tax offset") to prevent double taxation of income. This gets a bit messy because the U.S. tax year ends in December, whereas Australia ends it in June. My general plan for that is to claim the appropriate credit in both returns, which I think will cover all income periods without having to delay any filings from waiting for the other country's tax year to end.
I use online tax services for filing returns in both countries. TaxAct in the U.S., Etax in Australia. Both of these are good deals and provide a reasonable amount of guidance. Etax in particular is good about giving personal attention as needed.
In the end I was surprised to find that, for us, living in Australia is about the same cost tax-wise as living in the U.S. This will not be the case for many, and the point remains that few financial advisers understand tax issues in multiple countries; you must make it your business to educate yourself regarding the applicable treaties.