Taxes

Joel and I are deep in tax season.

In Australia, the financial year runs from July 1 - June 30 the following year.  We both stopped getting paid in America before July 1 last year, which made our Australian taxes much simpler because for the 2014-15 tax year we had no foreign income.

In Australia, to report your income, employers give employees sheets of paper called PAYGs, similar to W2s, but there are no state or local taxes, no social security or any other boxes, because health insurance is covered by the taxes from day 1.  You can file online on the actual Australian Tax Office web site for free.  If you do this, they already know a lot about you just from your Tax File Number (like a social security number).  When I put my TFN in the box on the tax office's website, all my banking and employment information, including interest earned and money paid, was filled in for me.

The only extra information you need to add is any deductions you are taking, and some information  about private health insurance that you carry.  Although public health insurance is free for all citizens or permanent residents, the government encourages additional private health insurance for very expensive things like hospitalizations, pregnancies, joint replacement, heart surgery, orthodontia.  If you have this insurance, you get a rebate on your tax. 

There's no child care credit in Australia, because that is given up-front to your daycare/school provider (in other words, you get discounted daycare/precare/aftercare through Medicare at the time you use the service).  The whole procedure is pretty simple.  So simple that we were both able to lodge our tax return on the government tax website on our own.  Took 15 minutes per return (each person has to file separately, even if you're married).

Now that we've finished that, we can tackle the American taxes. 

American expatriates have an automatic two-month extension on tax filings without even asking for one, so our new deadline for the duration is now June 15.  This year we filed an extension for our American taxes anyway because expats can deduct foreign taxes paid from the taxes we owe in America, but only if we've been "bona fide residents" of a foreign country for at least 330 days.  We needed until  the end of June to do this.  Plus, we weren't sure how much foreign tax we were actually going to have to pay, so we waited until now to find out how much we actually paid to Australia. 

We might have to file for extensions every year, or file amended returns every year once we find out how much we actually pay to Australia, due to the misalignment of the financial years.  The U.S. is one of the only countries that makes its citizens pay taxes on money they earn in another country if they live in another country.  It's a frustrating situation, because there are about 6 million American expatriates living all over the world, and we essentially have no representation in Congress.

There are a lot of financial requirements for expatriates that are really burdensome.  If an expat has more than US$100,000 total in bank accounts and/or retirement accounts they have to file a form called FATCA that tells the U.S. every foreign account we have, and how much is in it.  If we have more than US$10,000 in the same accounts we have to file a form called FBAR.  The penalties for not filing these forms is over US$10,000.  I've seen articles written about the reporting requirements that say they are so complicated that even tax accountants aren't entirely sure how to fill these out.  Luckily our financials here are fairly simple for the moment,  but it's one more thing to think about.  The deadline for those forms is June 30 every year.  There was a petition circulating earlier in the year to eliminate FATCA for bona fide expatriates, and I think it was even taken up by some members of Congress.  The point of FATCA was to track down people laundering money in overseas accounts, but of course those people don't fill out the forms.  Only the actual expats who get double-taxed on accounts abroad are doing the right thing.

Another complication:  employers here are required to put about 9% of your salary into retirement accounts, called superannuation, or "super" for short.  For some reason, the IRS doesn't consider super contributions to be retirement accounts, but rather another source of income.  Advice is to declare super contributions as income anyway for U.S. tax purposes, because Australian taxes are so high, usually the tax we pay in Australia will negate the extra tax we would have to pay in the U.S. on super income.

Confused?  Us too.  Lots of us, actually.  I belong to a Facebook group dedicated to American expatriates asking questions about filing taxes.  Two lovely accountants, one in Israel and one in Italy, answer everyone's questions.  I belong to two other "Americans in Australia" type Facebook groups on which taxes are always a hot topic.  Still, looking for a competent tax accountant in Australia to do our American taxes.