After hardly 40 days, the Government has now decided to amend its new cost base indexation laws to allow Australian expats (and other non-residents) to have the benefit of the cost base indexation on a proportionate basis from 1 July 2027.

On 26 June 2026, the Government legislated and introduced Section 114.25 ITAA 1997 which reads as follows:

INCOME TAX ASSESSMENT ACT 1997 – SECT 114.25

Residency requirements for individuals for indexation to be included in a cost base under subsection 110 – 36(1A)

 (1)  This section sets out requirements for indexation to be included under subsection   110 – 36(1A) in the * cost base of a * CGT asset for the purposes of working out your * capital gain from a * CGT event happening in relation to the * CGT asset if:

 (a)  you are an individual; and

 (b)  the CGT event happened while you were holding the CGT asset (as a result of earlier * acquiring it).

Note:  This section applies for working out a capital gain you make from directly holding the asset. A similar result arises for any capital gain you make indirectly as a beneficiary of a trust (see Subdivision 115 – C, in particular subsections   115 – 225(4) and (5)).

 (2)  You must be neither a foreign resident nor a * temporary resident at any time during the period (the testing period) :

 (a)  starting on the later of 1   July 2027 and the day of * acquiring the * CGT asset; and

 (b)  ending on the day the * CGT event happens.

The Problem: Complete Loss Of Indexation

The effect of Section 114.25 is that if a person is a non-resident at any time during their ownership period of an Australian investment property, they will not be able to benefit from cost base indexation at all – regardless of how long they may have owned the property while living in Australia.

We highlighted this inequity in a tax seminar held for members and invitees of the American Australian Association in New York on 16 July 2026.

We are pleased that the Government has now proposed to address this issue.

Legislation As “Beta Code”?

Curiously, the Explanatory Memorandum which introduced the Tax Reform Act 2026 flagged that

“Future amendments may be considered in relation to how entities that are resident for only part of the period they hold a CGT asset …may access indexation. “

That begs the question: Why did the Government legislate in this manner in the first place if they knew there was an equity issue that would need to be addressed?

It is disappointing to see this legislative approach, which wastes valuable time and resources and fuels uncertainty.

New tax rules should not be treated as some form of ‘beta code’, released for user acceptance testing with bug fixes in the form of amendments.

Since the equity issue here was surely known at out the outset it, these issues would have been far better addressed as part of exposure draft legislation rather than being rush through with all the other Budget changes.

RIP Section 114.25 ITAA 1997 – alive for hardly 40 days and already ready to be cast aside!

“O, ill-fated tax Section, whither goest thou? To become an irrelevancy after not having inconvenienced a single person!”

What The Proposed Amendments Mean For Expats

The proposed removal of Section 114.25 will mean that:

• a Departing Australian moves overseas and becomes a non-resident, they will NOT lose the benefit of cost base indexation completely (on property they directly own).
• a Returning Australian can also benefit from cost base indexation upon returning, on a proportionate basis.

Trust Ownership

We caution that this amendment only addresses the equity issue where a person directly owns real estate and changes tax residency.

It does not deal with the situation where a beneficiary of an Australian trust changes tax residency and the asset of the Trust is sold.

The Government is aware of this, given its latest comments as follows:

‘Further consideration is being given to determining appropriate outcomes for taxpayers who change their residency status and how make capital gains indirectly through a trust.’ (paragraph 1.92 Exposure Draft Explanatory Memorandum Treasury Laws Amendment (Tax Reform No. 3) Bill 2026: CGT Adjustments (Tranche 2).

It would be straightforward to permit a non-resident to benefit from cost base indexation to the extent they have been a resident of Australia at some point during the Trust’s ownership of the asset.

That approach to apportionment for trust level capital gains was already perfectly operational under the previous 50% CGT discount rules.

Whether the Government extends this reasonable approach to trust beneficiaries remains to be seen. Will they or won’t they (allow it) – that is the question.

Need Guidance On Your Australian Tax Residency Status?

If you are an Australian expat owning property directly or through family trusts, evolving CGT rules can significantly impact your international tax profile.

Contact our team today to discuss how these indexation amendments affect your assets and future tax planning.

Disclaimer: This article provides general information only and does not constitute formal tax or legal advice. Tax laws are complex and subject to change. Please consult a qualified tax advisor regarding your specific circumstances.

The U.S. Incentives Playbook: How Australian Businesses Can Turn Expansion Into Advantage

For many Australian companies, the United States looks deceptively simple, one country, one flag, one massive consumer market. 

However, the reality is far from that. Apart from culture and the use of words two other things are highly diverse as businesses move from US state to US state. The first is tax law, the second is incentives provided by governments.

America is not one market but rather a federation of federal rules, state tax systems, city-level economic development offices, local workforce programmes, utility incentives, property tax negotiations and industry-specific credits.

That complexity can often overwhelm newcomers. However, with the right planning, businesses can benefit.

The question for an Australian company should not simply be, “Where should we incorporate?” or “Which state has the lowest tax?” 

The better question is – where will our U.S. activities create the most value – jobs, investment, research, manufacturing, training, clean energy or exports – and which government wants that activity enough to support it?

America Does Not Hand Out Incentives Automatically

The United States has a deep incentives ecosystem, but it is rarely automatic. 

A business that signs a lease, hires staff and announces a location before speaking to the relevant economic development agencies may have already given away much of its negotiating leverage.

At the federal level, SelectUSA is a useful starting point for foreign investors. 

It is led by the U.S. Department of Commerce and is designed to facilitate job-creating business investment into the United States. 

It has helped facilitate more than US$400 billion in investment and supported more than 270,000 U.S. jobs, according to the Department of Commerce. 

It is important to note though that SelectUSA is a gateway, not a open cheque book. While it helps investors understand the market, access data and connect with federal, state and local stakeholders – it does not itself award most state or local incentives. 

This distinction matters. 

In the U.S., the most valuable incentive package for an expanding business is often not a single federal grant. 

It may be a carefully negotiated combination of state tax credits, local property tax abatements, workforce training support, infrastructure assistance, energy incentives and federal tax credits.

State Incentives: Where The Real Competition Begins

The U.S. states compete fiercely for investment, but they do so in different ways. 

Some states emphasize low headline tax rates. 

Others offer targeted credits for job creation, capital investment, research and development, advanced manufacturing, life sciences, clean energy or workforce training.

That means the “best” state is rarely the one with the lowest headline tax rate. 

It is the state where the company’s operating model, workforce needs, customer base, supply chain and tax profile align.

Let’s look at New York as an example.

Its Excelsior Jobs Program can provide fully refundable tax credits over a benefit period of up to 10 years, but only where businesses meet and maintain specified job and investment thresholds. 

The programme can cover credits linked to jobs, investment, research and development, real property and childcare-related expenditure. 

It is attractive, but it is not automatic. 

It is a performance-based programme with accountability built in. 

Georgia offers a different kind of advantage through Georgia Quick Start, which provides customised workforce training free of charge to qualified new, expanding and existing businesses. 

For labour-intensive or technical operations, that support can be more valuable than a headline tax credit because it directly reduces the cost and friction of building a workforce. 

California’s Employment Training Panel is another example. 

It provides funding to employers to assist with training that leads to long-term, well-paid jobs. 

Importantly, it is a funding agency, not a training provider, so companies must still design and manage their own training strategy. 

The lesson is simple – incentives follow facts. 

A software company, a sports-tech platform, a medical device business and a manufacturing group may all need different states, different agencies and different applications.

Do Not Confuse “Low Tax” With “No Tax”

Australian businesses often hear that Texas and Florida are “no tax” states. 

That is too simplistic.

Texas does not impose a traditional corporate income tax, but it does impose a franchise tax on taxable entities formed or organised in Texas or doing business there. 

For 2026 and 2027, the Texas Comptroller lists a no-tax-due threshold of US$2.65 million and franchise tax rates of 0.375% for retail or wholesale businesses and 0.75% for other businesses, subject to the applicable rules. 

Florida has no personal income tax, but that does not mean corporations operate free of state income tax. 

Florida’s corporate income/franchise tax rate is 5.5% for taxable years beginning on or after 1 January 2022. 

For an expanding Australian group, the state comparison should include corporate tax, franchise or gross receipts taxes, sales tax, payroll taxes, property tax, apportionment, local business taxes, employment law, labour costs, logistics, customer proximity and available incentives. 

A low-tax state can still be expensive if it is the wrong commercial fit.

Zones Can Help – But Know What Kind Of Zone You Are In

Location-based incentives are common in the United States, but the terminology can be misleading. “Enterprise zone,” “opportunity zone,” “empowerment zone,” “development zone” and “distressed area” do not mean the same thing.

Opportunity Zones, for example, are frequently misunderstood. 

They are primarily investor-side tax incentives. 

A taxpayer may be able to defer eligible gains by investing through a Qualified Opportunity Fund, but the benefit does not operate like a direct grant to a business merely because it opens an office in a designated area. 

Under current legacy rules, eligible gains invested into a Qualified Opportunity Fund may be deferred until an inclusion event or 31 December 2026, whichever is earlier. 

The programme is also evolving. 

IRS guidance states that the 2025 federal legislation commonly referred to as the One Big Beautiful Bill Act makes the Qualified Opportunity Zone incentive permanent, with the first post-enactment round of new QOZ designations taking effect on 1 January 2027 and new rounds following every 10 years. 

It also introduced additional tax benefits for certain rural-area Opportunity Zone investments. 

For practical purposes, this means a business should not simply ask, “Are we in a zone?” 

It should ask: who receives the benefit, what investment is required, when must the investment be made, what compliance applies, and does the benefit fit our capital structure?

The R&D Tax Credit – Powerful, But Not A Blank Cheque

For innovative Australian companies entering the U.S., the federal R&D tax credit can be one of the most valuable incentives available. 

But it is often oversold.

The U.S. R&D credit is not a reimbursement of research spending. 

It is a tax credit calculated by reference to qualifying research activities and qualifying research expenses. 

The activity must satisfy the section 41 requirements, including the four-part framework: the expenditure must relate to section 174-type research, the work must seek technological information, the information must be intended for use in developing a new or improved business component, and substantially all of the activity must involve a process of experimentation for a qualified purpose. 

That does not mean the company must invent something never seen before. 

The IRS guidance confirms there is no separate requirement that the work exceed or expand the common knowledge of skilled professionals. 

In practice, the focus is on whether the company faced technical uncertainty, identified alternatives and evaluated those alternatives through a genuine process of experimentation. 

Qualifying expenses are narrower than many businesses expect. 

They generally include eligible wages, supplies used in qualified research, certain computer-use costs and 65% of eligible contract research expenses. 

A broad claim for “cloud computing” or “software development” costs should be reviewed carefully rather than assumed to qualify automatically. 

For Australian groups, one rule is especially important – foreign research does not qualify for the U.S. federal R&D credit. Research conducted outside the United States, Puerto Rico or U.S. possessions is excluded, even if it is performed for a U.S. taxpayer or by American researchers. 

That means work performed by engineers in Sydney, Melbourne or Brisbane generally cannot be converted into a U.S. federal R&D credit merely because the intellectual property is later used by a U.S. subsidiary. 

The structure of contracts, ownership of IP, location of personnel, funding arrangements and technical records all matter.

The Payroll Tax Opportunity For Younger Companies

For early-stage businesses, the R&D credit may be valuable even before the company has meaningful income tax liability.

A qualified small business may elect to use up to US$500,000 of its research credit against payroll tax for tax years beginning after 31 December 2022. 

The IRS states that the payroll tax credit is first used against the employer share of Social Security tax, with remaining credit then reducing the employer share of Medicare tax for the quarter. 

The eligibility rules are specific. 

A qualified small business generally must have gross receipts of less than US$5 million for the tax year and no gross receipts for any tax year before the five-tax-year period ending with the credit year. 

The election is also subject to timing and repeat-use limits. 

For a young Australian technology company launching in the U.S., that can be meaningful cash-flow support. 

But the company needs the right records from day one: project descriptions, technical uncertainties, employee time allocation, contracts, invoices and evidence of experimentation.

Do Not Confuse The R&D Credit With R&E Expensing

Another common trap is mixing up the R&D credit with the deduction rules for research and experimental expenditure.

Following recent U.S. tax changes, taxpayers may generally deduct domestic research or experimental expenditure paid or incurred in taxable years beginning after 31 December 2024, or elect to capitalise and amortise those domestic costs over at least 60 months. 

Foreign research or experimental expenditure cannot be currently deducted and is generally amortised over 15 years. 

That distinction is important for cross-border planning. 

A U.S. subsidiary carrying out domestic research may have both credit and deduction considerations. 

An Australian parent carrying out research offshore may face a different U.S. outcome. 

For groups with shared development teams, intercompany agreements and transfer pricing policies should be aligned with the intended tax position.

Clean Energy Incentives – Attractive, But Increasingly Technical

Sustainability incentives remain significant, but the rules are now highly technical.

The U.S. Clean Electricity Investment Credit has a base credit amount of 6% of qualified investment. 

That amount can increase up to 30% where prevailing wage and registered apprenticeship requirements are satisfied. 

Additional 10-percentage-point bonuses may be available for projects meeting certain domestic content requirements or located in an energy community. 

The credit may also be eligible for direct payment or transferability in certain circumstances, although taxpayers cannot claim both the investment credit and production credit for the same facility. 

This is a major planning area for businesses investing in solar, storage, clean electricity, manufacturing facilities or energy-intensive operations. 

But the “30% credit” should not be described as automatic. 

It depends on the project, the property, labour compliance, timing, location, domestic content, tax ownership and documentation.

The timing rules are also changing. 

IRS Notice 2025-42 explains that, under the 2025 legislation, section 45Y and section 48E credits terminate for applicable wind and solar facilities placed in service after 31 December 2027 where construction begins after 4 July 2026. 

For businesses, the message is clear – clean energy tax credits can improve project economics, but they should be modelled before committing capital. 

A rooftop solar project, a battery installation, a manufacturing upgrade and a major renewable generation project may all sit under different rules.

The Real Strategy – Design The U.S. Footprint Before Asking For Incentives

The most successful incentive strategies are built before the U.S. expansion is announced. 

Once a company has chosen a state, signed a lease, hired staff and committed publicly, the economic development agency may have little reason to offer support.

A strong U.S. incentives review should ask:

• What activities will be performed in the U.S.? 

• How many jobs will be created, and at what wage level? 

• What capital expenditure will be made? 

• Will the company conduct U.S.-based R&D? 

• Will it invest in training, manufacturing, clean energy, logistics or distressed-area development? 

• Does the company need incentives as cash grants, tax credits, abatements, training support or infrastructure assistance? 

• Are the incentives discretionary, automatic, refundable, transferable or subject to clawback? 

• How will the structure interact with Australian tax, U.S. federal tax, state tax and transfer pricing? 

The businesses that win do not treat incentives as an afterthought. 

They treat them as part of site selection, entity structuring, workforce planning and capital allocation.

Final Word – America Rewards Specificity

The U.S. incentive system is not simple but it can be worked through.

Australian businesses should avoid three mistakes:

1. assuming incentives are automatic;

2. chasing headline tax rates without modelling the full operating cost; and 

3. trying to claim credits after the commercial facts have already been locked in.

The better approach is to enter the U.S. with a clear operating story, where the company will invest, who it will hire, what it will build, what technology it will develop and how its presence will benefit the local economy.

In America, governments do not usually subsidise vague ambition. 

They support specific activity. 

The companies that understand that early can turn U.S. expansion from a cost centre into a strategic advantage.

CHECKLIST: Australia – US Market Entry Checklist

When Australian business owners talk to me about entering the US, the conversation usually starts where it should – growth. 

A bigger market, deeper capital, more customers, stronger partnerships.

The opportunity is real. What is often underestimated, though, is how quickly momentum can slow due to tax and reporting issues that were never properly mapped at the start. In the US, you are rarely dealing with one simple compliance system. Federal rules are only part of the picture. State tax, registration and sales tax obligations can arrive much earlier than many businesses expect.

One of the first things I usually encourage clients to think through carefully is the entity itself. 

Too often, the structure is treated as something that can be tidied up later. In practice, that can be an expensive mistake. A C corporation files Form 1120 and is taxed separately. A partnership files Form 1065 and pushes tax items out to the owners through Schedule K-1. A single-member LLC is generally disregarded for US income tax purposes unless it elects to be taxed as a corporation. On paper that may sound technical, but commercially it matters a great deal, because the wrong structure can create complexity long before the business has properly found its feet.

If an Australian group is looking at a US LLC, I would be especially careful. Where a foreign-owned US disregarded entity has reportable related-party transactions, Form 5472 can come into play, and it is filed with a pro forma Form 1120. The penalty for missing that filing starts at $25,000. That is exactly the kind of issue that catches decent businesses off guard—not because they are doing anything aggressive, but because nobody warned them early enough that the reporting obligation existed in the first place.

The state-tax piece is where many founders realise that the US is less one market and more fifty overlapping systems. Sales tax, state income tax, franchise tax and registration obligations can arise in different ways and at different times. Even the “business-friendly state” conversation needs a bit of nuance. Texas has franchise tax, Florida has corporate income/franchise tax, and many states now apply economic nexus rules that can pull remote sellers into registration and collection once thresholds are met.

Financial reporting deserves a little more attention than it usually gets at the start as well. In a public company context, SEC reporting can mean ongoing Form 10-K and Form 10-Q filings. More broadly, US financial reporting still revolves around GAAP. In practice, the challenge is often not understanding the theory, but ensuring the US numbers can be reported cleanly and consistently within the wider group without constant rework.

Hiring in the US is another area where practical business decisions and compliance meet very quickly. Employers generally need to withhold federal income tax and Social Security and Medicare taxes from wages, and most employers also need to deal with unemployment taxes at both federal and state levels. On top of that, worker classification matters. The IRS looks at the full relationship and the degree of control, not just what the contract happens to call someone. That is why I always say that calling a person a contractor is not the same thing as them actually being one.

Once the US business starts moving money across borders, the international rules need to be treated seriously. US persons with foreign financial accounts may have an FBAR filing obligation once aggregate balances exceed $10,000, and intercompany charges between an Australian parent and a US operation need to satisfy the arm’s-length standard. The best time to think about that is before the structure goes live, not halfway through an audit trail reconstruction exercise.

The good news is that none of this is unmanageable. 

But it does reward businesses that treat tax and financial reporting as part of commercial strategy, rather than as admin to be cleaned up later. 

The businesses that usually do well in the US are not always the ones that move fastest. They are often the ones that enter with the clearest structure, the best discipline and the fewest surprises. In my experience, that is where good advice still pays for itself.

CHECKLIST: Australia – US Market Entry Checklist

Taking your Australian business to the United States is an exciting milestone, but it comes with a steep learning curve—especially regarding human resources and employment law. 

In Australia, businesses rely on a familiar, centralised system governed by the Fair Work Act 2009. However, the US operates under a highly decentralised, federalist system. For Aussie expats and expanding enterprises, this means adapting to overlapping federal, state, and local regulations that can vary wildly depending on your exact location. Here is your essential guide to understanding the US labour landscape.

Navigating A Fragmented Legal Landscape

In the US, federal employment laws establish the baseline protections for workers nationwide. Statutes like the Fair Labor Standards Act (FLSA) set minimum wage and overtime rules, while the Civil Rights Act and Americans with Disabilities Act (ADA) strictly prohibit workplace discrimination.

However, federal laws are merely the floor. Individual states—and even local cities—can enact significantly stricter protections. For instance, while the federal minimum wage is set at US$7.25 per hour, states like California and New York enforce much higher minimum wages, along with enhanced paid sick leave and wrongful termination protections. Cities like San Francisco and Seattle have even more restrictive local rules. An Australian company operating in both Texas and California will face starkly different compliance landscapes, making a state-by-state HR compliance strategy absolutely essential.

The “At-Will” Culture Shock

One of the biggest paradigm shifts for Australian employers is the US at-will employment doctrine. Unlike Australia, which mandates minimum notice periods and redundancy entitlements, most US jurisdictions allow employers to terminate a worker at any time, for any reason (or no reason at all), provided the reason is not illegal.

While this flexibility allows businesses to scale their workforces rapidly, it is not an absolute rule. Crucial exceptions exist that can easily lead to wrongful termination lawsuits:

• Contractual Protections – Executives or unionised workers often negotiate “just-cause” termination clauses or severance agreements.
• Public Policy – You cannot fire someone for whistleblowing, refusing to commit fraud, or exercising a legal right like filing a workers’ compensation claim.
• Implied Contracts – Promises made in employee handbooks or during interviews can inadvertently create implied contracts, requiring employers to follow progressive disciplinary steps before firing. To protect your business, always include clear at-will disclaimers in offer letters and handbooks, and meticulously document your reasons for any termination.

The Benefits Gap: Healthcare and Retirement

Securing top talent in the US requires understanding that employee expectations differ vastly from those in Australia.

Healthcare Is An Employer Obligation

The US lacks a universal public system like Medicare. Because access to healthcare is heavily tied to employment, offering competitive, employer-sponsored health insurance is a fundamental necessity if you want to attract and retain quality staff.

The 401(k) vs. Superannuation

Instead of compulsory 11% superannuation contributions, the US utilises a voluntary defined-contribution system known as a 401(k). Employees contribute pre-tax income, and while it isn’t legally mandated, competitive employers usually match these contributions by 3% to 6%.

Navigating Payroll Taxes And Contractor Risks

US payroll taxes are a multi-tiered system. Rather than dealing with a single entity like the ATO, employers must withhold and match Federal Insurance Contributions Act (FICA) taxes, which fund Social Security (6.2%) and Medicare (1.45%). Additionally, employers are liable for both federal and state unemployment taxes (FUTA and SUTA), with state rates fluctuating based on your specific industry and history of layoffs.

Finally, if you plan to hire freelancers, tread carefully. The IRS and Department of Labor strictly enforce worker classification laws. Misclassifying an employee as an independent contractor can trigger severe fines, back-pay claims, and lawsuits. Ensure you have well-drafted independent contractor agreements that clearly define the project scope, payment terms, and the worker’s independent status.

Conclusion

Expanding into the American market is not a one-size-fits-all endeavour. By implementing centralised HR compliance systems, understanding local legislative nuances, and consulting with US labour attorneys, Australian businesses can successfully mitigate risks and build a thriving stateside workforce.

CHECKLIST: Australia – US Market Entry Checklist

Expanding into the US can be a growth-defining move for an Australian business — new customers, deeper capital markets, a bigger talent pool. But there’s one reality that catches founders off guard: in the US, immigration isn’t a “formality.” It’s a regulated operating system. If you treat it like admin, it will eventually treat you like a compliance event.

At a high level, three agencies shape most employment- and investment-based pathways:

• USCIS (US Citizenship and Immigration Services) – adjudicates petitions and many work-authorisation processes inside the US
• DOL (Department of Labor) – protects US wage and working-condition standards (especially for employer-sponsored roles)
• DOS (Department of State) – issues visas at US embassies/consulates outside the US

When these agencies don’t align — or when documentation isn’t airtight — the cost is rarely “just delay.” It can disrupt onboarding, derail projects, and create legal exposure you don’t want attached to your US launch.

The E-3 Visa: Australia’s Unfair Advantage (When You Can Use It)

For many Australian companies and professionals, the E-3 is the cleanest entry point. It’s available only to Australian citizens working in a specialty occupation (typically requiring at least a bachelor’s degree or equivalent).

Why it’s so attractive:

• A dedicated annual cap (10,500) that has historically not been reached
• Lower friction and cost compared to many alternatives
• Renewable in two-year increments with the ability to extend repeatedly (so long as eligibility remains)

A major practical benefit: spouses of E-3 holders can obtain work authorisation (EAD) and work broadly in the US. For many families, that single feature makes the E-3 dramatically more livable than other work visas.

The key constraint: E-3 is not “dual intent.” In plain English: it’s designed as a temporary visa. You generally need to maintain the narrative (and supporting facts) that you intend to return to Australia. That doesn’t make a future green card impossible, but it does mean you need a plan — and you need to time it properly.

When E-3 Doesn’t Fit: The Other Work Visa Lanes

If the role or candidate doesn’t qualify for E-3 — or if permanent residency is part of the strategy — the next options depend on your structure and the person’s profile.

H-1B: The Well-Known Option (And The Lottery Problem)

H-1B also targets specialty occupations, but it’s open to all nationalities — which is why it’s heavily oversubscribed. Most applicants face a lottery due to annual caps (commonly referenced as 65,000 plus an additional 20,000 for certain US master’s degree holders).

Why companies still use it:

• Dual Intent (clearer alignment with future green card planning)

The downside many families feel most:

• Spousal work rights can be more limited and situational than E-3 (some H-4 spouses can qualify for an EAD under specific conditions, but it’s not as straightforward as E-3/E-2 in practice).

L-1: Ideal For Intracompany Transfers (If You Have The Structure)

L-1 is often the most logical pathway when you have a real operating company in Australia and you’re transferring someone to a US entity.

• L-1A for executives/managers
• L-1B for specialised knowledge staff
• Requires the employee to have worked for the overseas entity for at least one year within the preceding three years (in most cases)
• Dual intent is permitted

This visa often works best when your corporate structure and role definitions are clean — and when your organisational chart supports what you’re claiming.

O-1: For Top-Tier Profiles With Evidence To Match

The O-1 is for individuals with extraordinary ability (business, science, arts, etc.). There’s no annual cap, and extensions can continue as long as the work remains eligible.

But this is not a “strong resume” visa — it’s an evidence visa. Think:

• major awards or significant recognition
• published material about the person
• critical roles in distinguished organisations
• judging, original contributions, high salary, and other recognised criteria

If the story is “they’re excellent,” O-1 is hard. If the story is “their excellence is documented by third parties,” O-1 becomes very viable.

The E-2 Visa: The Founder/Operator Pathway

For entrepreneurs and owner-operators, E-2 can be a powerful route. Australia is a treaty country for E-2, and the visa is designed for people who will develop and direct a US business they’ve invested in.

Key points that matter in real life:

• You generally need to own at least 50% (or otherwise control the enterprise)
• The investment must be substantial and genuinely at risk (committed and exposed to loss)
• There’s no fixed minimum, but in practice investments often sit in a broad range (commonly US$100k–$500k+, depending on the business model)
• The business can’t be “marginal” — it should be capable of supporting more than just the investor’s household over time

Like the E-3, a major family advantage is that E-2 spouses can obtain open work authorisation.

Compliance That Actually Matters: LCAs, Files, And Timelines

For E-3 and H-1B, one recurring compliance anchor is the Labor Condition Application (LCA). This is where the employer certifies (to the DOL) that the worker will be paid appropriately (prevailing wage rules) and that hiring them won’t undercut local working conditions.

A few operational truths:

• Processing timelines vary – E-3 can often be relatively quick; H-1B and some USCIS petitions can take longer due to caps, scrutiny, and workflow
• Your file is your defence– job descriptions, wage rationale, organisational charts, degree equivalency support, and consistent HR records matter more than people expect
• Tracking expiry dates isn’t optional – late renewals create avoidable risk and business interruption

The Tax Trap: Immigration Status ≠ Tax Status

This is the part that blindsides many Australians.

Your visa category does not determine US tax residency. The IRS applies the Substantial Presence Test, which is based on days in the US over a rolling period. It’s entirely possible to be on a temporary visa and still become a US tax resident, meaning worldwide income may enter the US tax net.

That can pull in items Australians don’t expect to be “in play,” including:

• investment income from Australia
• complex treatment questions around superannuation
• reporting regimes that can apply to foreign accounts and entities
• state tax exposure (often the nastiest surprise), especially in places like California and New York, which operate with their own rules and don’t “care” as much about treaty outcomes as people assume

The US–Australia tax treaty can help mitigate double taxation, but treaties don’t automatically make complexity disappear — they often just change how you need to document and position the outcome.

The Mistakes That Create Expensive Problems

A few patterns show up again and again in US market entries:

• Misclassifying Employees As Contractors To “Simplify Payroll”
  This can trigger issues with the DOL and IRS, and it’s a fast way to attract scrutiny.
• Building The US Plan First And Asking Immigration To “Make It Work” Later
  Better approach: design the role, entity structure, and timeline with the visa pathway in mind.
• Overstays And Timing Errors
  Overstaying by more than 180 days can trigger a three-year re-entry bar, and one year can trigger a ten-year bar. Those are business-ending outcomes for the wrong person at the wrong time.

A Practical Way To Think About It

If you’re entering the US, treat immigration and tax as two parallel workstreams:

1. Immigration Workstream – right visa, right evidence, right timing
2. Tax Workstream – residency modelling, entity/payroll setup, cross-border reporting, state exposure

When those two streams are coordinated early, the US expansion feels controllable. When they’re not, businesses find themselves reacting — and reaction is always more expensive than design.

General information only — not legal or tax advice. US immigration and tax outcomes depend heavily on facts, timing, and documentation.

CHECKLIST: Australia – US Market Entry Checklist

Most Australian businesses don’t fail in the United States because the market rejects them. 

They fail because the structure underneath them wasn’t built for the way the US actually works.

From a distance, the US looks like one market. 

In practice, it’s a federal system sitting on top of fifty separate state regimes, each with its own tax rules, registration requirements, employment laws and compliance triggers. What works neatly in Australia can become awkward very quickly once you have people on the ground, customers in multiple states, or inventory crossing state lines.

That’s why the first mistake is usually asking the wrong question.

The question isn’t “Should we set up in Delaware?”
The real question is “What are we actually building in the US?”

If the plan is to test the water,  a small team, early customers, limited capital at risk and a structure that needs to stay flexible. If the plan is to scale, raise capital, issue equity to US hires and keep exit options open, the structure needs to look like something the US market already understands.

Most Australian businesses end up in one of those two lanes, whether they realise it or not.

Where the ambition is serious growth, the default answer is often a US C-Corporation. 

Not because it’s clever, but because it’s familiar. US investors, banks, lawyers and employees all know how to deal with it. Equity can be issued cleanly. Option plans work the way people expect. Governance is recognisable. Due diligence is faster because the shape of the company makes sense to the people looking at it.

The trade-off is that C-Corps come with formality and tax layering. There is corporate tax at the company level and tax again when profits are distributed. Board processes matter. Records matter. But that discipline is usually the price of admission if you want to play properly in the US growth market.

At the other end of the spectrum sits the LLC, which often gets sold as the “simple” option. And in the right circumstances, it can be. LLCs offer limited liability, fewer rigid corporate rules and a lot of flexibility in how economics and control are documented.

The catch though and it’s a big one for Australians is that simplicity in the US domestic context doesn’t always translate neatly across borders. The way an LLC is treated for US tax depends on elections and ownership, and foreign owners can find themselves pulled into US tax filings and reporting in ways they didn’t anticipate. Add state-level fees and compliance, and the “easy” structure can become anything but if it hasn’t been thought through properly.

That doesn’t make LLCs wrong. It just means they need to be chosen deliberately, not by default.

Then there are the structures that sound familiar but rarely fit. S-Corporations are popular with small US businesses, but they generally don’t work for Australian expansion because of tight ownership and equity restrictions. Partnerships can be excellent for joint ventures and specific commercial arrangements, but when foreign partners are involved, withholding and reporting obligations in the US can quickly outweigh the flexibility they offer.

What often gets missed entirely in early conversations is whether a US subsidiary is even the right first step. Some Australian businesses initially operate in the US as an Australian entity registered at the state level, particularly where activity is limited or transitional. In other cases, a clean US subsidiary is essential from day one to contain risk, satisfy customers or prepare for an eventual sale. There’s no universal rule but the choice has real consequences for liability, tax exposure and how easy it is to unwind or exit later.

Another blind spot is the assumption that incorporation solves everything. 

It doesn’t. In the US, obligations are driven less by where you’re incorporated and more by where you actually operate. 

Hire people in one state, warehouse goods in another, sell software into several more, and you can quickly find yourself dealing with multiple tax authorities and registration regimes. Sales tax in particular has a habit of appearing earlier than expected, especially for digital and e-commerce businesses.

And then there’s the question that almost always gets left until too late, how does the money come home?

Funding a US operation, charging for IP, repatriating profits and documenting intercompany arrangements are not clean-up exercises. 

They’re foundational. The longer they’re left, the more value gets trapped behind structures that weren’t designed to move it efficiently.

The same applies to people. The moment you hire in the US, everything becomes real, payroll, employment compliance, benefits, insurance, and expectations around equity. 

This is another reason growth-oriented businesses often gravitate to C-Corp structures early, US employees understand them, and equity incentives actually work the way they’re supposed to.

The pattern, after years of watching Australian businesses expand into the US, is fairly consistent. The companies that do well are not the ones with the cleverest structures. They are the ones that chose a structure that matched their ambition, accepted the discipline that came with it, and put the foundations in place before momentum made change difficult.

The ones that struggle usually weren’t reckless. They were just early optimists. They picked something that worked “for now” and assumed they’d fix it later. In the US, later tends to arrive during fundraising, diligence or a dispute when flexibility is at its lowest and the cost of change is at its highest.

General information only. Not advice. But if you’re planning a US expansion, it’s worth remembering this, the market is big, forgiving and full of opportunity but it has very little patience for structures that don’t match the story you’re trying to tell.

CHECKLIST: Australia – US Market Entry Checklist

Moving to the States on an E-3 and selling your Australian home around the same time? 

There’s a simple timing difference between Australia and the US that can quietly turn a tax-free Australian sale into a taxable gain in America. 

The fix is usually straightforward—but you need to plan the dates.

Two Countries, Two Clocks

• Australia – For capital gains tax (CGT), the “disposal” of property happens when you sign the contract. If it’s your main residence, the Australian rules can often wipe out the gain at that point.
• United States – For income tax, the sale generally happens when you settle/close—the day title and the benefits of ownership pass.

If you sign in March (Australia sees the disposal then) but you don’t settle until May, the US sees a May sale.

Why E-3 Arrivals Get Caught

US tax residency doesn’t depend on your visa—it’s driven by a day-count test (the “substantial presence” test). 

In the year you meet that test, your US residency start date is effectively the first day you set foot in the US that year.

Here’s the rub:

• Before you arrive – You’re a non-resident for US tax.
• After you arrive (and once you meet the day-count) – You’re a US tax resident from that first day of presence forward.

So, if you arrive before settlement, the US treats the later settlement as a sale while you’re a resident—even if Australia already treated the sale at contract and applied the main residence exemption. 

Australia may charge no tax, leaving you with no credit to use against the US bill.

“Won’t The Treaty Save Me?”

Often not. 

The Australia–US tax treaty allows each country to tax its residents under their own rules. 

Once you’re a US resident for tax, the US can tax your worldwide gains—including your Australian home—despite Australia’s main residence outcome. 

In short: great treaty, unhelpful here.

The Good News: The US Home-Sale Exclusion

The US has its own main-home relief. 

If you owned and lived in the home for any two years in the five years before settlement, you can generally exclude up to USD $250,000 of gain (USD $500,000 for many married couples filing jointly).

A home outside the US can qualify—there’s no requirement it be on American soil.

A couple of friendly clarifications:

• You don’t need to be living there on the day of settlement. A reasonable period after moving out is fine.
• If your gain is bigger than the exclusion, the excess is taxed at US capital gains rates.

A Simple Example

March – You sign a contract to sell your Sydney home. Australia treats the disposal now, and—because it’s your main residence—there’s no Australian CGT.

April – You fly to the US to start your E-3 job. From that first day in April (once you meet the day-count), you’re a US tax resident.

May – The sale settles. The US sees a May sale while you’re a resident. Unless the US home-sale exclusion fully covers the gain, you could have US tax to pay—with no Australian credit to offset it.

What Smart Planning Looks Like

Sequence The Dates

The cleanest solution is to settle before you set foot in the US for that year. 

If that’s not possible, see if settlement can be brought forward.

Use The US Exclusion

Check whether you meet the 2-out-of-5-year ownership and use test. 

Keep tidy records of when you lived there and of any renovations/improvements (they can increase your cost base for US purposes).

Play The Day-Count Carefully

If you’ll be in the US for less than half the year, there are limited rules that may let you remain a non-resident for US tax that year (if your main ties stay in Australia). 

This is a facts-and-paperwork exercise—worth exploring before you travel.

Mind The Currency

Your US return is in US dollars, so exchange rates can make your US gain look bigger or smaller than it feels in AUD.

If you have an AUD mortgage, paying it off at settlement can create a separate US-tax currency gain or loss. It’s manageable—just don’t be surprised by it.

Quick Checklist Before You Fly

1. Ask The Agent/Solicitor – Can we accelerate settlement?
2. Map Your Days – When exactly will you land in the US? Can you delay arrival until after settlement if needed?
3. Confirm Eligibility – Do you meet the US home-sale exclusion? Gather proof of ownership, occupancy, and improvements.
4. Model The Numbers – Estimate the gain in USD and test different arrival/settlement dates.
5. Paperwork Plan – If you’ll be under 183 days in the US this year and keeping your life in Australia, ask whether an exception to US residency could apply.

Common Myths—Busted

• My visa type decides my tax.” No—the day-count does.
• “If Australia doesn’t tax it, the US can’t.” Not true once you’re a US tax resident.
• “I must be living there on settlement day to claim US relief.” Not required—you just need the 2-out-of-5-year history.

The Bottom Line

For many Aussies heading over on an E-3, the only real “trap” is timing. Australia taxes at contract, the US taxes at settlement. 

Arrive in the US before settlement and your main residence can suddenly have a US tax bill attached. 

The best defences are simple: settle before you arrive where possible, lean on the US home-sale exclusion, and plan your day-count.

Add a quick currency sense-check, and you’ll turn a potential headache into a non-event.

If you’re planning to relocate permanently from Australia to the United States, understanding how your assets will be taxed is crucial. Whether you own shares, rental properties, or other investments, both countries have complex tax rules that may apply. Proper planning helps ensure you’re not taxed twice on the same gain.

What Happens To Your Asset Values When You Move To The U.S.?

Important: Contrary to what many assume, the United States does not automatically reset or “step-up” the tax value (basis) of your assets when you become a U.S. tax resident. Instead, your original purchase price typically remains the basis for calculating your future U.S. taxes. This means you may face U.S. taxes on gains that occurred even before moving to America.

Example (Shares):

Say you bought shares in a major Australian bank years ago for AUD $30,000. By the time you relocate to the U.S., they are worth AUD $150,000. Later, as a U.S. tax resident, you sell them for AUD $180,000. Without special planning, the U.S. taxes you on a gain of AUD $150,000 (AUD $180,000 minus your original AUD $30,000 purchase price)—even though most of that appreciation occurred while you lived in Australia.

Australia’s Exit Tax: What Is It?

When you cease Australian tax residency, Australia imposes a tax on your worldwide capital assets, treating most as if you’ve sold them at their current market value (Income Tax Assessment Act 1997, section 104-160). This “exit tax” effectively taxes your accumulated gain up to that point.

Example (Shares Continued):

At departure, your shares valued at AUD $150,000 (original cost AUD $30,000) would trigger Australian Capital Gains Tax (CGT) on the AUD $120,000 gain immediately—even though you haven’t actually sold them.

Risk Of Double Taxation

If no special steps are taken, you face paying tax twice:

• First – Australia taxes your AUD $120,000 gain at the time you leave.
• Later – The U.S. taxes the entire AUD $150,000 gain when you sell the shares, including the AUD $120,000 already taxed by Australia.

Clearly, this is not ideal. Fortunately, the U.S.-Australia Tax Treaty provides two valuable solutions.

Solution #1: The Treaty Basis Step-Up (Paying Australian Exit Tax)

Under Article 13(5) of the U.S.-Australia tax treaty, you can elect to treat your assets as sold and immediately repurchased at their market value at the time you cease Australian residency, effectively “stepping up” your basis for U.S. tax purposes.

Example (Shares):

Using the treaty election, your U.S. tax basis for the shares is reset to AUD $150,000—the market value at your departure from Australia. Later, when you sell these shares in the U.S. for AUD $180,000, you pay U.S. tax only on the AUD $30,000 gain accrued after moving. This prevents double taxation, as the pre-move AUD $120,000 gain was already taxed by Australia.

Solution #2: Deferring Australia’s Exit Tax (Exclusive U.S. Taxation)

Australia offers an alternative: you may defer the immediate payment of the exit tax (ITAA 1997, section 104-165). Instead of paying tax upfront, you defer taxation until the actual sale of your assets. Under normal circumstances, this deferred asset would remain taxable by Australia.

However, Article 13(6) of the U.S.-Australia treaty states that if you move to the U.S. and defer Australian exit tax, Australia relinquishes its right to tax that gain, granting exclusive taxing rights to the U.S.

Example (Shares With Deferral):

You defer the Australian exit tax on your shares. Several years later, as a U.S. resident, you sell these shares for AUD $180,000. Australia no longer has the right to tax this gain. Only the U.S. will tax you, applying tax to the full AUD $150,000 gain (original AUD $30,000 cost basis to AUD $180,000 sale price).

This approach gives you cash-flow flexibility at departure (no immediate tax payable), and you may benefit if U.S. tax rates are lower.

How These Rules Impact Different Types Of Assets – Practical Examples

Example 1: Rental Property

Suppose you bought a Sydney apartment as an investment property 10 years ago for AUD $500,000. It’s now worth AUD $1,200,000. You relocate to the U.S. permanently:

Example 2: Portfolio Of International Shares

Suppose you invested AUD $100,000 into global shares now worth AUD $400,000 when you leave Australia for the U.S.:

• Australian Treatment At Exit
  Australia taxes the AUD $300,000 gain immediately (shares aren’t Australian property, so they face immediate exit tax).
• U.S. Without Treaty Step-Up
  Later selling at AUD $450,000, U.S. taxes AUD $350,000 (AUD $450,000 sale price less original AUD $100,000 cost), again double-taxing most of the gain.
• With Treaty Step-Up
  By electing the treaty basis step-up, your U.S. tax basis is reset to AUD $400,000. Selling later at AUD $450,000, the U.S. only taxes AUD $50,000, preventing double taxation on pre-move gains.

Example 3: Shares In Your Australian Business

You founded a small Australian business, investing AUD $200,000 initially. By relocation time, it’s worth AUD $1,000,000.

• Australian Treatment
  Australia imposes exit tax on your AUD $800,000 gain at departure, unless you defer.
• U.S. Without Treaty Step-Up
  Selling later at AUD $1,200,000, the U.S. taxes AUD $1,000,000 (full gain from initial AUD $200,000), causing double taxation on AUD $800,000 already taxed by Australia.
• With Treaty Step-Up
  Treaty election resets your U.S. basis to AUD $1,000,000. Selling later for AUD $1,200,000, you only pay U.S. tax on AUD $200,000, protecting you from double taxation.

How To Make A Treaty Election?

To claim this valuable treaty-based step-up, you’ll typically file IRS Form 8833 (Treaty-Based Return Position Disclosure) with your first U.S. tax return as a resident, clearly electing the treaty basis step-up under Article 13(5).

Key Points To Remember

• The U.S. generally does not reset your tax basis on relocation.
• Australia’s exit tax rules may cause double taxation if ignored.
• The U.S.-Australia tax treaty offers a treaty-based step-up or exclusive taxing right to the U.S., protecting you from double tax.
• Proper planning is essential. Evaluate your choices carefully, ideally with professional advice, to choose the best strategy for your situation.

Understanding these tax implications early helps you confidently and efficiently transition your financial life from Australia to the U.S.

For Australian expatriates residing in the United States, inheriting property, shares, or cash from Australia involves several important tax considerations. 

While Australia does not have an inheritance tax – the U.S. has an estate tax that could potentially apply under certain circumstances. 

Additionally, the tax treatment of inherited assets differs between the two countries, particularly concerning capital gains tax (CGT) in Australia and income tax obligations in the U.S.

This article provides a detailed, accurate guide to understanding:

• How the U.S. and Australia treat inheritances
• The correct cost base rules for inherited assets in Australia
• What taxes you need to consider when selling or earning income from inherited assets
• Key reporting requirements for expats receiving an inheritance from Australia

Let’s dive in.

Understanding U.S. Estate Tax And The 1953 U.S.-Australia Estate Tax Treaty

Unlike Australia, the United States has an estate tax, which applies to the total value of a deceased person’s U.S.-situated estate. 

However, the “Convention Between the Government of the United States of America and the Government of the Commonwealth of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates of Deceased Persons” (1953 U.S.-Australia Estate Tax Treaty) provides certain protections for Australian expats.

How U.S. Estate Tax Applies To Australian Expats

 If You Inherit Assets From Australia

• No U.S. estate tax applies when you inherit property, shares, or cash from an Australian estate.
• However, once you own the asset, any future income, dividends, or capital gains from selling the asset will be taxable in the U.S.

If You Own U.S. Assets When You Die

• U.S. estate tax applies to U.S.-situs assets (e.g., real estate, U.S. stocks, U.S. businesses).
• The 1953 U.S.-Australia Estate Tax Treaty allows Australians to claim the same U.S. estate tax exemption as U.S. citizens.
• In 2024, the U.S. estate tax exemption is $13.61 million—meaning no U.S. estate tax applies if your worldwide estate is below this amount.

If your worldwide estate exceeds this threshold, U.S. estate tax could apply at rates of up to 40%.

Key Takeaways

1. If you inherit assets from an Australian estate, the U.S. does not impose estate tax on you.
2. If you own U.S. assets when you die, your estate could be taxed—but only if your worldwide estate exceeds $13.61 million.
3. The 1953 treaty protects Australians from double taxation on estate matters.

Inheriting Property In Australia While Living In The U.S.

Australian Tax Implications: Capital Gains Tax (CGT) On Sale

While inheriting property itself is tax-free, Australia imposes capital gains tax (CGT) when you sell the inherited property. 

The rules for calculating the cost base (original value for tax purposes) depend on when the deceased acquired the property.

Correct Cost Base Rules For Inherited Property In Australia

When the Deceased Acquired the Property	Your Cost Base
Before 20 September 1985 (pre-CGT asset)	The market value of the property on the date of the deceased’s death.
Before 20 September 1985, but a major improvement was made on/after that date	The market value of the original asset + the cost base of the improvement at the date of death.
On or after 20 September 1985 (post-CGT asset)	The deceased’s cost base at the date of death, unless:  The property was the deceased’s main residence and not used to generate income before death, in which case the cost base is reset to market value at the date of death.

When The Deceased Acquired The Property	Your Cost Base
Special disability trust property	The cost base is the market value at the date of death.

Selling Inherited Property & Australian CGT

If you sell the property within two years, you may qualify for a CGT exemption (if the deceased’s main residence was not used for rental income).

If the property was an investment property, CGT applies based on the correct cost base.

U.S. Tax Implications

No U.S. tax applies when you inherit the property.

However if you sell the property, the IRS will tax the capital gain, but you can claim a foreign tax credit for Australian CGT to avoid double taxation.

If you rent out the property, you must report rental income in the U.S. and may owe tax.

Inheriting Shares In Australia While Living In The U.S.

Australian Tax Implications

• No tax is due at the time of inheritance.
• If the deceased acquired the shares before 20 September 1985, the cost base is  the market value at the date of death.
• If the deceased acquired the shares on or after 20 September 1985, your cost base is the deceased’s cost base at the date of death.

U.S. Tax Implications

• No U.S. tax applies to the inheritance itself.
• Any dividends from Australian shares are taxable in the U.S. as foreign income.
• When you sell the shares, you must report the capital gain to the IRS.
• If you pay Australian CGT, you can claim a foreign tax credit in the U.S.

Inheriting Cash In Australia While Living In The U.S.

Australian Tax Implications

No tax applies to inherited cash in Australia.

U.S. Tax Implications

• No U.S. tax applies to the inheritance itself.
• If you receive over USD $100,000 from a foreign inheritance, you must file IRS Form 3520.
• Failing to file Form 3520 can result in penalties of $10,000 or more.

U.S. Reporting Requirements For Australian Inheritances

Form	Who Needs to File?	What It Reports
FBAR (FinCEN Form 114)	If foreign financial accounts exceed $10,000	Foreign bank accounts, superannuation, shareholdings
Form 8938	If foreign assets exceed $50,000 (single) or $100,000 (joint)	Foreign financial assets, including shares
Form 3520	If you inherit $100,000+ in a single year	Reporting large foreign inheritances to the IRS

Final Takeaways: What You Need To Know About Inheritance As An Australian Expat In The U.S.

• No U.S. estate tax applies to inheritances from Australia due to the 1953 U.S.-Australia Estate Tax Treaty.
• Australia has no inheritance tax, but CGT applies when selling inherited property or shares.
• The correct cost base for inherited Australian assets depends on when the deceased acquired them.
• Rental income and dividends from Australian assets must be reported in the U.S.
• If you receive more than $100,000, you must file IRS Form 3520 to report it.
• Foreign tax credits can help prevent double taxation on asset sales.

The above is a general overview of inheritance considerations for Australians living in the US. There may be nuances in your personal circumstances that may need specific tax advice. It is important you obtain individual advice specific to your situation.

Moving to the United States as an Australian expat is an exciting step, but it also comes with a range of financial and tax implications that can be confusing. 

One of the most significant concerns we encounter for Australians relocating to the U.S. is how their Australian superannuation is treated. Unlike other investments, superannuation has unique tax and reporting requirements that can significantly impact your financial position.

This article explores how your Australian superannuation is treated in the U.S., the disclosures and forms you need to file, the consequences of contributing to super while living in the U.S., and what happens when you access your super while residing in America.

How Is Your Australian Superannuation Treated In The U.S.?

Superannuation is a cornerstone of retirement planning for Australians, but once you move to the U.S., its classification under American tax law becomes complicated. 

The main challenge arises from the fact that the U.S. does not recognize Australian superannuation as a tax-deferred retirement account like a U.S. 401(k) or IRA. Instead, the U.S. views superannuation in one of two ways:

1. Foreign Trust – The Internal Revenue Service (IRS) may consider your super fund as a foreign grantor trust, subjecting it to complex U.S. tax and reporting requirements. This classification may lead to additional tax liabilities, particularly when earnings inside the super fund are realized.
   
2. Foreign Pension – In some cases, the superannuation fund may be classified as a foreign pension, which can offer a more favorable tax treatment. However, there is no definitive IRS guidance on this, leading to inconsistent application of tax rules.

Taxation Of Superannuation In The U.S.

Regardless of its classification, the U.S. generally taxes superannuation in ways that differ from Australian tax laws. While contributions and earnings may grow tax-free in Australia, the U.S. may tax contributions, earnings, and distributions differently. Key considerations include:

• Employer Contributions: Employer contributions to your super fund may be considered taxable income in the U.S. in the year they are made.
  
• Investment Earnings: Earnings within your superannuation fund, such as dividends and capital gains, may be subject to annual U.S. taxation, even if they are not distributed.
  
• Withdrawals and Distributions: The tax treatment of superannuation withdrawals varies, but in many cases, distributions may be taxed in the U.S. as ordinary income, even if they are tax-free in Australia.

The range of outcomes noted above depends on the type of superannuation fund you have.

Self Managed Superannuation Funds

For expats in the USA that have a ‘Self-Managed Superannuation Fund’ urgent attention is needed toward restructuring your Superannuation Fund BEFORE you move to the USA.

Remaining the Trustee of an Australian Superannuation Fund after you move to the US – even inadvertently – causes a number of serious tax issues both in Australia (not the focus of this article) and the USA.

One of the major issues is that you are personally taxable on the income of the Australian Self-Managed Superannuation Fund as it arises. This can add materially to your USA tax bill and should be avoided.

What Disclosures And Forms Do You Need To File?

As an Australian expat living in the U.S., you must comply with stringent reporting requirements related to your superannuation. 

Failure to do so can result in significant penalties. Some of the key forms and disclosures include:

1. FBAR (Foreign Bank Account Report) – FinCEN Form 114
   • If the total value of your non-U.S. financial accounts (including superannuation) exceeds $10,000 at any time during the year, you must file an FBAR.
   • Superannuation accounts are generally considered foreign financial accounts and should be included in the FBAR filing.
2. Form 8938 (Statement Of Specified Foreign Financial Assets)
   • If the total value of your foreign financial assets (including superannuation) exceeds certain thresholds ($50,000 for single filers, $100,000 for married filers living in the U.S.), you must file Form 8938 with your tax return.
   • This form is in addition to the FBAR and provides the IRS with detailed information about your foreign financial accounts.
3. Form 3520 (Annual Return To Report Transactions With Foreign Trusts)
   • If your superannuation is classified as a foreign trust, you may need to file Form 3520 to report contributions and distributions.
4. Form 8621 (Passive Foreign Investment Company – PFIC) Reporting
   • If your superannuation fund holds certain types of investments (e.g., managed funds), you may have to file Form 8621 to report Passive Foreign Investment Company (PFIC) income.

Consequences Of Contributing To Super While Living In The U.S.

If you continue making superannuation contributions while residing in the U.S., you may face unintended tax consequences:

• U.S. Tax on Contributions: Since the U.S. does not recognize super contributions as tax-deferred, employer contributions may be taxable to you in the year they are made.
• Double Taxation Risks: While contributions may be tax-free in Australia, they may be taxable in the U.S., leading to double taxation.
• Compliance Burden: Additional contributions increase the complexity of reporting and could result in higher U.S. tax compliance costs.
• Potential Loss of Benefits: Depending on how your super fund is classified, additional contributions could subject you to PFIC rules, leading to unfavorable tax treatment.

What Happens When You Can Access Your Super And Are Living In The U.S.?

When you reach preservation age and become eligible to withdraw your superannuation, you must consider how the U.S. will treat these withdrawals:

• Australian Tax Treatment – In Australia, lump-sum withdrawals from super after the age of 60 are typically tax-free.
• U.S. Tax Treatment – The U.S. may treat these withdrawals as taxable income, potentially subjecting them to ordinary income tax rates.
• Foreign Tax Credits – You may be able to offset some U.S. tax liability by claiming foreign tax credits, but this depends on the tax treaty’s applicability and how your super is classified.
• State Taxes – If you live in a U.S. state that imposes income tax, super withdrawals may also be subject to state taxation.

Strategies For Managing Your Super As A U.S. Based Expat

To minimize your tax burden and compliance obligations, consider the following strategies:

1. Pause Contributions While In The U.S.
   • Avoid making new contributions to super to prevent triggering additional U.S. tax and reporting obligations.
2. Review Your Super Investments
   • Assess whether your super fund contains investments subject to PFIC rules, and consider adjusting your investment mix.
3. Work With A Tax Professional
   • Given the complexity of superannuation taxation in the U.S., consult a tax advisor experienced in cross-border taxation.
4. Plan For Withdrawals
   • If you intend to withdraw super in the future, explore tax-efficient withdrawal strategies to minimize your U.S. tax liability.

Key Takeaways For Australians Living In The USA With Superannuation

Navigating superannuation as an Australian expat in the U.S. is challenging due to differing tax treatments and complex reporting requirements. 

Understanding how your super is classified, ensuring compliance with U.S. tax laws, and proactively planning for contributions and withdrawals can help you avoid unnecessary tax burdens. 

Given the nuances of cross-border tax regulations, seeking advice from an international tax firm is essential to optimize your financial situation while living in the U.S.

By staying informed and proactive, you can ensure that your superannuation remains a valuable asset for your retirement, regardless of where you reside.