# US Citizen Moving to Australia - Suggestion on best Tax Structure



## namdo (Jan 31, 2017)

Hi experts,

I'm an US citizen moving to Australia under Visa 189 Permanent Resident with my husband and 2 kids. I have some options below to consider, but don't know which option will result in the least tax payments to both Australia and US. Please advice:

1) Option 1: I can work for a US company as it's employee, but will be living in Australia permanently. That means I still have my FICA and Medicare taken out of my paycheck, correct? And I still need to pay Australia tax, Australia super, and US tax?

2) Option 2: I can work as self-employ in Australia and have only 1 US company as my client. I heard this can raise suspicion with the IRS. And as self employ in Australia, will I have to pay much higher tax than being an employee? I heard maybe I'll need to pay 30% tax and 10% VAT?

3) Option 3: I can work as an employee of an Australian company.

Thanks so much!


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## Bevdeforges (Nov 16, 2007)

namdo said:


> 1) Option 1: I can work for a US company as it's employee, but will be living in Australia permanently. That means I still have my FICA and Medicare taken out of my paycheck, correct? And I still need to pay Australia tax, Australia super, and US tax?


Normally, you don't get to choose which tax and social security system you pay into. Generally speaking, you are taxed first of all by the country of which you are a resident. If you're working for a US company that has an Australian site, you'll be taxed on their Australian payroll and have Australian social insurances taken out. As a US citizen/taxpayer, you can claim the Foreign Earned Income Exclusion to avoid being double taxed on your salary income. But unless your US employer is the US government, you don't get to elect to pay US social security and/or taxes.



> 2) Option 2: I can work as self-employ in Australia and have only 1 US company as my client. I heard this can raise suspicion with the IRS. And as self employ in Australia, will I have to pay much higher tax than being an employee? I heard maybe I'll need to pay 30% tax and 10% VAT?


Nope. If you're self-employed and performing the work in Australia, you are considered to be working in Australia and are subject to all their labor laws, including taxation. Where your "customers" are located is completely irrelevant. The business is Australian and will be taxed as such.



> 3) Option 3: I can work as an employee of an Australian company.


Actually, all three of your options wind up being taxed in the same manner. You still have to continue to file US taxes, though you'll have the FEIE to fall back on - or you can take your Australian income taxes paid as a credit against your US tax liability.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

Ok sorry this is very long… getting carried away… but hopefully this will all be food for thought... 

For starters, the Dual Taxation Convention and the Totalisation Agreement do not give you any choice into which system you have pay into. They are inter-government agreements that allow the governments to choose. Yes, technically, if you are living in Australia and working for a US based company, paying into US accounts you could avoid taxation in Australia. I personally know of one person who took that approach… they ended up in a world of hurt. 

Besides, remember those taxes will be used to pay for the roads you drive on, the schools your children attend and the hospitals that will admit you without asking to see insurance papers first. 

As you are entering as a permanent resident, the ATO will see you as a Tax Resident of Australia and thus you should report all your global income – Australia will have primary taxing rights. You will be eligible for a Foreign Tax Offset on any tax paid on both US State and Federal Taxes resulting from the fact that the US taxes based on citizenship. On the US side your income would be considered foreign earned and thus you could take the foreign earned income exclusion or foreign tax credits to offset the US tax liability.

From a totalization perspective, as you have not been sent to Australia temporarily by your employer you will be subject to the social security laws of Australia. 

From the perspective of taxation in Australia, option 1 and option 2 are similar in light of the fact that you have only one client – chances are high that you will be caught up under the alienation of personal services clause, which means all of your sole-trader type income would be treated as personal income rather than business income. 

In both cases there will be no tax withholding or superannuation so you will need to manage that yourself. Personally, I would avoid setting up a self-managed super fund because then you will get hit with US grantor trust rules and have to pay US tax on the growth in the fund. 

By VAT I assume you mean GST (Goods and Services Tax). Exports of goods and services from Australia are generally GST-free. So you would not have to add the 10% GST to your invoices, and I assume you would not have to register for GST so long as you only have your 1 US client. Beyond that if you are operating as a business you must register for GST if your turnover is $75,000.

Nothing to stop you setting up a limited liability company and trade under an ACN rather than an ABN. Your company would pay you a salary and/or dividend and would make concessional taxed contributions to your super. As a wholly owned foreign company you could for the purposes of US Taxes treat it as self employment income. On the Oz side you would have two sets of tax returns… one personal and one business.

Yes. Australian taxes seem high, but remember there are no State income taxes.


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## Moulard (Feb 3, 2017)

One late thought on this... Remember that there is a US-Australia Totalisation agreement.

Article 6 Paragraph 8 reads...



> Where a national of the United States who is a resident of Australia works in the capacity of a self-employed person, the person shall not be subject to the laws of the United States.


The other point is that the tie breaking rules of paragraph 9 mean that if one country considers you self employed, and the other employed, then you are treated as self employed. Which in light of the paragraph above, given you are (or will be) in Australia means that you will be exempt from US SS and Medicare taxes.

So if you go down the route of option 1 or option 2 that should protect you from US Social Security and Medicare taxes. Of course you have to ensure that your US employer does not withhold them...


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## Bevdeforges (Nov 16, 2007)

Moulard said:


> So if you go down the route of option 1 or option 2 that should protect you from US Social Security and Medicare taxes. Of course you have to ensure that your US employer does not withhold them...


And that is normally the sticking point in these "telecommuting" arrangements. The US employers are happy to keep international telecommuters on the US payroll, because for them, it's a no brainer. Just crank out a paycheck like everyone else, and their work is done.

Just remember that US employers have to justify to the IRS any "employee" for whom they are NOT withholding Federal tax and/or US social security. And the IRS can be real picky about the justifications they'll accept. Be especially careful if the US employer insists on having a US address for you, because they will then have to withhold state (and possibly local) taxes, which can be next to impossible to get back. Social security withholdings are pretty much lost (other than the fact that you can get "credit" for those quarters when it comes times to claim). Some employers may just withhold local taxes based on the employer's address. 
Cheers,
Bev


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