US-Australia tax treaty: a practical guide for Americans abroad

If you’re a US citizen, green card holder, or US tax resident living in Australia, you’re likely filing in two countries and wondering how to avoid paying tax on the same income twice. The US–Australia tax treaty is designed to help expats like you – but only if you understand how to use it.

In this guide, we’ll explain what the treaty actually covers, how it affects your income from work, investments, or retirement, and how special cases like superannuation are handled. You’ll also learn how to claim tax relief, which forms to file, and when US rules still apply.

What is the US–Australia tax treaty and why does it matter?

The US–Australia tax treaty is a bilateral agreement between the United States and Australia designed to prevent double taxation and reduce tax barriers between the two countries.

The income tax treaty defines which country has taxing rights over your income and outlines mechanisms like tax credits or exemptions to avoid taxing the same income twice.

If you're earning income in both countries, the treaty can help you minimize your global tax bill.

Who does the US–Australia tax treaty apply to?

The US–Australia tax treaty applies to individuals and businesses that are considered tax residents of either the United States or Australia:

• US citizens or green card holders living in Australia
• accidental Americans living in Australia
• Australian residents earning income from US sources
• dual citizens with US passports
• American retirees in Australia
• businesses, entrepreneurs, digital nomads, and freelancers operating across US–Australia borders

Even if you’re not a citizen, you may still be considered a tax resident under local rules – and that’s where the treaty steps in to help determine where your income is taxed and how to avoid paying twice.

Residency and tie-breaker rules explained

In some cases, both the US and Australia may consider you a tax resident. This can happen if you meet the residency requirements of both countries in the same tax year.

How dual residency is determined in Australia and the US:

• Australia: You’re a resident if you live there permanently, intend to stay long term, or spend 183+ days in a year with a permanent home.
• US: You’re a resident if you’re a citizen, green card holder, or meet the substantial presence test (183+ days in a rolling 3-year period, weighted).

When both countries consider you a resident, Article 4 of the tax treaty provides a structured tie-breaker test:

• Permanent home: Where do you have a permanent place of residence?
• Center of vital interests: Where are your personal and economic ties stronger?
• Habitual abode: In which country do you spend more time?
• Nationality: Are you a citizen of one country?

Mutual agreement: If none of the above resolves the issue, tax authorities from both countries, Internal Revenue Service (IRS) and Australian Taxation Office (ATO), will negotiate the outcome.

How to avoid double taxation with the US–Australia treaty

Even though the US taxes its citizens on worldwide income, the US–Australia tax treaty and domestic tax rules offer several ways to avoid being taxed twice on the same income.

The treaty outlines how each country should tax different types of income – and when tax paid to one country can offset tax owed to the other. The main tools used are the foreign tax credit (FTC) and the foreign earned income exclusion (FEIE). These aren't part of the treaty itself but are available under US law and often used alongside treaty benefits.

Foreign tax credit (FTC)

The FTC allows you to offset your US tax liability with income taxes you’ve already paid to Australia. This is especially useful for Australians working full-time and paying relatively high tax rates.

Example: If you earn $120,000 AUD in Australia, you’ll pay about $26,800 AUD in income tax. You can claim this amount as a Foreign Tax Credit on your US return. If your US tax is $24,000 USD, the credit cancels it out – and any excess can be carried forward.

Foreign earned income exclusion (FEIE)

While not part of the US–Australia tax treaty, the FEIE is a key tool many expats use to reduce their US tax bill.

It’s a separate provision under IRC Section 911 that lets you exclude up to $126,500 in 2024 (rising to $130,000 in 2025) of earned income – if you meet the bona fide residence or physical presence test.

3 most common tax-saving strategies under the treaty

1. Combine FEIE for salary and FTC for investment income

While you can’t use the foreign earned income exclusion and the foreign tax credit on the same income, you can apply them to different types. Many expats use the FEIE to exclude salary or self-employment income and the FTC to offset taxes on investment income like dividends or interest.

2. Use the treaty to apply lower withholding rates on US dividends

The US–Australia tax treaty reduces the standard withholding tax rates on US-source dividends paid to Australian residents. Instead of the typical 30%, the treaty generally limits the rate to 15%, and sometimes 0% for retirement accounts.

To benefit, you need to submit Form W-8BEN to your US financial institution. Without it, they’ll withhold the full 30% by default. An Australian resident receiving $10,000 in US dividends pays $1,500 instead of $3,000 in US tax — just by submitting the form.

3. Properly allocate income and deductions between countries

If you're filing tax returns in both countries, proper allocation of income and deductions ensures that you’re not taxed unfairly or double-dipping. The treaty can help determine source rules and deductibility, especially for pensions, rental income, or business expenses.

Not sure which strategy works best for your income mix? At Taxes for Expats, our experts will help you make the right call

How are different types of income treated by the tax treaty?

The US–Australia tax treaty allocates taxing rights based on the type of income and the residency of the taxpayer.

Employment and self-employment income (Articles 7, 14, 15)

Employment income is generally taxed in the country where the work is physically performed. If you're working for a US company but performing your job in Australia, Australia gets primary taxing rights. The US can still tax the income, but you can offset it using the FTC.

Short-term assignments: If you're in Australia for fewer than 183 days in a 12-month period, and certain conditions are met, you may be exempt from Australian tax.

Self-employment income: If you don't have a permanent establishment in the other country, only your country of residence can tax the income.

Real estate income and capital gains (Articles 6, 13)

Rental income is taxed where the property is located. If you own property in Australia, you’ll pay tax there – even if you live in the US. Capital gains on real estate are also taxed in the country where the property is located.

For stocks and securities, the treaty gives taxing rights to your country of residence.

Dividends, interest, and royalties (Articles 10, 11, 12)

• Dividends paid from the US to Australian residents are generally taxed at a 15% US withholding rate (reduced from 30% by the treaty). This can be lowered to 0% for certain government pension or retirement plans.
• Interest is generally exempt from source-country tax – if paid to a resident of the other country.
• Royalties are typically taxed only by the country of residence of the recipient.

Pensions, annuities, and social security (Articles 18, 19, 20)

Private pensions are generally taxable in the residence country, but government pensions are taxed in the paying country, unless the recipient is a resident and citizen of the other country (Article 19.)

Social security benefits are taxed only by the source country – meaning only the US taxes US social security payments, even if you live in Australia.

Superannuation and US tax: what you need to know

Under Australian law, superannuation funds are treated as retirement accounts. But the IRS sees things differently.

From the US tax perspective, most super funds are classified as foreign trusts or PFICs (Passive Foreign Investment Companies) – which means they’re subject to complex rules, reporting requirements, and often unfavorable tax treatment.

Contributions to your super fund – whether made by you or your employer – are not deductible on your US tax return. The IRS does not recognize super as a qualified retirement plan, so these amounts are treated as regular income.

Annual taxation of earnings: Even if you don’t withdraw anything, the IRS may tax the earnings inside your super each year. Depending on how the fund is structured you may need to file Form 3520/3520-A if it's considered a foreign trust.

Getting your superannuation wrong can cost you. At TFX, we’ve helped thousands of Americans in Australia report their super correctly and avoid costly mistakes. If you’re unsure how your super affects your US taxes, we’ll walk you through it – step by step.

What is the saving clause to the US–Australia tax treaty?

The US–Australia tax treaty includes a saving clause (Article 1(3)) that allows the US to tax its citizens and green card holders as if the treaty didn’t exist.

This means that even if the treaty assigns taxing rights to Australia, the US still taxes your worldwide income – unless a specific article provides an exception. Always check whether a treaty benefit is exempt from the saving clause before relying on it.

The US-Australia totalization agreement

The US and Australia have a totalization agreement that helps prevent double social security taxation.

If you're temporarily working abroad (for five years or less), you typically pay into only your home country’s system – not both. To claim this exemption, you’ll need a Certificate of Coverage.

The agreement also lets you combine work credits earned in both countries to qualify for social security benefits like retirement or disability – even if you don’t meet the standard minimum in either country alone.

FBAR & FATCA: reporting foreign assets

The US–Australia tax treaty does not remove your obligation to report foreign assets.

If you have over $10,000 in foreign accounts, you must file an FBAR (FinCEN Form 114). If your foreign assets exceed certain thresholds (e.g., $200,000 for individuals abroad), you may also need to file FATCA(Form 8938) with your US return.

Pro tip. These are US reporting requirements, separate from the treaty, and penalties for non-compliance can be steep – even if no tax is owed.

How to claim tax treaty benefits: forms and rules

To properly claim tax treaty benefits, ensure you file the appropriate forms with both the IRS and the ATO:

When to file US and Australian tax returns

US tax returns: Due April 15. Americans abroad receive an automatic extension to June 16, 2025. To extend further to October 15, file Form 4868.

Australian tax returns: Due October 31 if self-prepared. If lodging through a registered tax agent, deadlines may extend, provided you're registered with the agent by October 31.

Claim the treaty benefits with Taxes for Expats

The US–Australia tax treaty offers powerful tools to avoid double taxation — but understanding the fine print, filing the right forms, and applying it correctly takes expertise.

At Taxes for Expats, you’ll be matched with a real human tax expert who knows the US–Australia treaty inside and out – someone who takes the time to understand your situation and guide you personally, year after year.

We’ve spent over 20 years helping Americans living and working in Australia, Australians with US income, and dual-status taxpayers navigating two systems. With 50,000+ returns filed, we know how to get it right.