Life in Australia tops the list for many US citizens. With its easy-going lifestyle and strong job market, added to its closeness to stunning locations across Asia and the Pacific, it’s not surprising that thousands of Americans reside in Australia. But though far from the US, something that will not evaporate is your tax liability in the US.
For many expats, the wake-up call is an IRS tax notice. A notice reminding them of unfiled tax returns, a warning that they are in arrears on a penalty, or a request to clarify is usually the call they make. These notices are alarming and confusing. This handbook guides you through what it means to receive an IRS notice as an expat residing in Australia, why it happens, and how to stay compliant with US expat taxation while in Australia.
Why US Expats in Australia Receive IRS Notices
Even though you’ve been paying tax in Australia, the IRS nevertheless expects you to file US tax returns annually. Some expats think that paying Australian tax will be enough, only to receive an IRS letter later.
Major commonest reasons expats in Australia receive IRS notices are:
- Unfiled tax returns US: US citizens must file an annual federal return whether they have tax to pay or not.
- Foreign bank account reporting gaps: If you failed to file FBAR (FinCEN Form 114) and had over $10,000 balances, the IRS may contact you.
- Reporting gaps for FATCA: Form 8938 is required if you have foreign financial assets over certain thresholds.
- Superannuation confusion: The IRS would handle superannuation differently from the ATO, and this would lead to inconsistencies.
- PFIC investments: Australian managed funds or mutual funds may be considered “Passive Foreign Investment Companies” by the IRS, which have special reporting requirements.
First Things to Do After Receiving an IRS Notice Overseas
Receiving an IRS notice overseas can be intimidating, but it does not have to be. Here’s what to do:
- Read the notice carefully
IRS notices usually have a bold notice number (e.g., CP2000) explaining the issue.
- Don’t just ignore it
Disregarding IRS notices can increase penalties or initiate enforcement procedures.
- Check deadlines
Most notices have a response deadline. Failure to meet it will increase penalties.
- Check filing history
See if you reported all required forms: Form 1040, FBAR, FATCA, and so on.
- Consult an expert
Expat tax matters are complex. An Expat US Tax-savvy cross-border tax professional can help resolve the notice quickly.
US Tax Filing Requirements for Expats in Australia
Here’s what you should already be doing to avoid getting IRS notices in the first place:
1. Federal Tax Return (Form 1040)
- Required annually if your income exceeds the filing threshold ($13,850 for singles in 2025).
- Comprises wages, pensions, self-employment, and property income.
2. Foreign Earned Income Exclusion (FEIE – Form 2555)
- Puts you in a position to exclude up to $126,500 (2025 limit) of foreign-earned income.
- Must meet the Physical Presence Test or Bona Fide Residence Test.
3. Foreign Tax Credit (FTC – Form 1116)
- Offsets US tax payment with taxes already paid to Australia.
- Virtually priceless because Australian tax typically exceeds US tax.
4. FBAR (FinCEN Form 114)
- Must be submitted if the total balance in all foreign bank accounts exceeds $10,000 USD.
5. FATCA (Form 8938)
- Must be done if your foreign assets exceed thresholds (e.g., $200,000 for single foreigners abroad).
Australian Tax Residency and Its Effect
The Australian Taxation Office (ATO) determines residency separate from the IRS. You would be considered a resident for tax purposes if:
- You live and work in Australia for the long term
- You have a home or rent one in Australia
- Your family resides there
- You keep few connections to the US
If you’re an Australian tax resident, you’ll owe tax on your worldwide income—just like in the US. This overlap is where the US-Australia Tax Treaty comes into play.
The US–Australia Tax Treaty
The treaty exists to prevent double taxation. Key points include:
- Gives taxing rights to either the US or Australia for some kinds of income.
- Enables expats to claim Foreign Tax Credits to prevent double taxation.
- Includes a savings clause: the US can still tax its citizens, treaty rules notwithstanding.
The treaty does not exempt filing requirements—it simply provides relief tools.
Superannuation and IRS Problems
One of the hardest parts of US expat tax Australia is superannuation.
- US intentions might not permit deductibility of contributions.
- Income in the account may be taxed by the IRS.
- Withholdings can be addressed in a different manner by the IRS compared to the ATO.
Because the IRS doesn’t firmly stand on superannuation, expats receive most notices of misreporting or underreporting.
Avoidance of Double Taxation
Expats generally can avoid double taxation using a combination of the following tools:
| Tool | Purpose | Form |
| FEIE | Keep foreign-earned income to $126,500 | Form 2555 |
| FTC | Offset tax in the US with tax paid in Australia | Form 1116 |
| Tax Treaty | State taxing rights and avoid overlap | Form 8833 (occasionally required) |
Most expats use FEIE and FTC in combination for the best results.
US Expat Filing Deadlines in Australia
- US Federal Tax Return (Form 1040): June 15 (automatic expat extension)
- FBAR (FinCEN 114): April 15 (automatic extension to October 15)
- Form 4868 Extension: Extends deadline to October 15; additional extension to December 15 on request
- Australian Tax Return: October 31 (extension available if preparing using a registered tax agent)
Common Errors That Trigger IRS Notices
- Believing paying Australian tax exempts a US filing requirement
- Omitting reporting of superannuation accounts
- Failing to meet FBAR or FATCA reporting obligations
- Failing to apply PFIC rules to Australian mutual funds
- Employing standard tax software that does not recognize expat complexity
FAQs: Expat US Taxes in Australia
Why did I get an IRS notice while I’m in Australia?
Most probably because of delinquent filings, reporting errors, or undeclared accounts. Doesn’t necessarily mean you owe money, but need to take action.
Do I actually have to pay tax in the US and Australia?
Yes. US citizens always need to file with the IRS. If you’re an Australian tax resident, you will also need to file with the ATO.
I owe several years of US taxes. What can I do?
You may qualify for the Streamlined Foreign Offshore Procedures, which allow expats to bring their taxes up to date penalty-free.
Is my superannuation subject to tax in the US?
Maybe. Contributions, increases, or withdrawals could be taxed under different rules by the IRS than the ATO.
Can I ignore the IRS notice as I am resident outside the United States?
No. Ignoring IRS notices may lead to greater penalties, interest, or enforcement action.
