Dividend income for American Expats in Australia
Published by
Reviewed by
Jonathan Rose, an IRS Enrolled Agent with 14 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.
Jonathan also talked about family tax benefits in Australia. *Schedule a consultation with Jonathan today.
*30-minutes US$347.
Table of Contents
How does dividend income work for American expats in Australia?
Dividend income is money paid by companies to people who own their shares, often as a way of dividing the profits among shareholders. If you’re a US citizen or Green Card holder living in Australia, you need to report this income to the IRS and might also have to pay taxes on it in Australia.
Do American expats in Australia need to report dividend income to the IRS?
Yes, if you’re an American living in Australia, you must report any dividend income you earn to the IRS.
The US requires all its citizens, even those living abroad, to report all their income from around the world, including dividends from US and foreign companies.
When filing your US tax return, you list your dividend income on Form 1040. If your total dividends are more than US$1,500, or if you earn dividends from foreign accounts, you’ll also need to complete Schedule B.
Make sure to keep track of all dividend payments and any taxes you’ve already paid to Australia because this information will help when you file your US taxes.
How does the US-Australia tax treaty affect American expats?
The US-Australia Tax Treaty helps prevent double taxation by outlining which country can tax specific types of income. However, the US still taxes its citizens, so you may need to file extra forms to claim treaty benefits.
How does the treaty help?
- Foreign Earned Income Exclusion (FEIE) – If you work in Australia, you can exclude up to US$130,000 of foreign income from US taxes.
- Foreign Tax Credit (FTC) – If you pay taxes in Australia, you can use this credit to avoid paying US taxes on the same income.
- Capital Gains Tax Rules – The treaty helps determine whether the US or Australia taxes profits from selling property.
- Social Security & Retirement (Superannuation) – Since the US and Australia have a totalization agreement, US expats who pay into Australia’s superannuation system may not have to pay US Social Security taxes.
- Lower Tax on Investment Income – The treaty reduces tax rates on dividends, interest, and royalties paid between the two countries.
What is the difference between dividend income being taxed in the US and Australia?
The US and Australia have different ways of taxing dividend income.
In the US, dividends are either “qualified” or “ordinary.” Qualified dividends are taxed at lower rates, similar to capital gains, while ordinary dividends are taxed like regular income. To be considered qualified, the dividends must meet certain rules, such as being paid by a US or approved foreign company.
In Australia, dividend income often comes with “franking credits,” which show that the company has already paid some taxes on the profits it’s distributing. These credits can reduce the taxes you owe in Australia. However, franking credits don’t count for US taxes, so you’ll need to calculate your dividend income differently when reporting it to the IRS.
To prevent paying tax on the same income twice, you can use the Foreign Tax Credit (Form 1116) when filing your US tax return.
What documents do I need to report dividend income?
- Form 1099-DIV: This form is issued by US companies or financial institutions to show the dividends they’ve paid you.
- Foreign dividend statements: For dividends from Australian companies, you’ll need statements showing how much you received and any taxes withheld.
- Tax payment receipts: Keep proof of any taxes paid to the Australian government on your dividends. You’ll need these to claim a Foreign Tax Credit.
- Exchange rate records: Since you are required to report everything in US dollars, keep track of the exchange rates you use to convert Australian dollars.
Need help on your Dividend Income? Contact us today.
Does the US-Australia tax treaty mention anything about dividends?
Yes, the US-Australia tax treaty includes rules about how dividends are taxed between the two countries. The treaty helps reduce double taxation by lowering the withholding tax rate on dividends paid to residents of one country by companies in the other.
For example, if you’re an American receiving dividends from an Australian company, the treaty might cap the withholding tax rate at a lower percentage than usual.
To take advantage of this benefit, you’ll need to submit Form W-8BEN to the company or financial institution paying the dividend. This form confirms your U.S. taxpayer status and ensures the reduced rate is applied.
The treaty works alongside other tax rules, such as the Foreign Tax Credit, which lets you claim credit on your U.S. taxes for taxes already paid in Australia. However, the “saving clause” in the treaty allows the U.S. to continue taxing its citizens on worldwide income, including dividends, even if they live abroad.
Additionally, dividend income under the treaty is taxed separately from other types of income, such as capital gains or social security payments, making it easier to manage. The treaty also includes measures to prevent tax evasion and provides guidelines for filing forms like Form 8833 if you’re claiming treaty benefits.
It’s important to note that the Foreign Earned Income Exclusion doesn’t apply to dividend income because it’s considered passive income.
If you’re unsure how the treaty applies to your situation, working with a tax professional familiar with the Internal Revenue Service (IRS) rules and the treaty can help you comply with the requirements while maximizing your tax benefits.
What is the difference between qualified and ordinary dividends?
As mentioned previously, qualified dividends are taxed at lower rates than ordinary income, which makes them more beneficial from a tax perspective. To qualify, the dividends must meet specific criteria, like being paid by a US company or an approved foreign company. You also need to own the stock for a certain period around the time the dividend is paid.
Ordinary dividends, on the other hand, don’t meet these requirements and are taxed at your regular income tax rate. When you receive a Form 1099-DIV or a similar statement from a foreign company, it will usually indicate whether your dividends are qualified or ordinary.
Do I need to convert Australian dividends to US dollars for reporting?
Yes, you need to convert Australian dividends into US dollars when reporting them on your US tax return. The IRS requires that all income, including dividends, be reported in US dollars.
You can use the annual average exchange rate for the year or the rate on the day you received the dividend. Whichever method you choose, make sure to use it consistently throughout your tax return.
Can I use the Foreign Tax Credit for Australian taxes paid on dividends?
Yes, you can use foreign tax credits to reduce the US taxes you owe on dividends that were already taxed in Australia. This prevents you from being taxed twice on the same income.
To claim the credit, complete Form 1116 and include details about the taxes you paid in Australia. The credit will reduce your US tax liability by the amount of Australian taxes you paid, up to certain limits. If you don’t use all your foreign tax credits in one year, you might be able to carry them forward to use in future years.
How is superannuation taxed for US expats in Australia?
The US views superannuation funds as “foreign trusts,” which means they come with additional reporting requirements and potential tax liabilities.
In Australia, superannuation contributions to employer-sponsored retirement accounts or public sector superannuation schemes may be tax-advantaged. However, the US doesn’t always recognize these benefits. For example, the IRS might tax employer contributions and earnings from the superannuation investment fund as they grow, even if you haven’t withdrawn the money yet.
The US-Australia tax treaty doesn’t specifically address superannuation funds, which can lead to double taxation. To offset this, you might use the Foreign Tax Credit to claim credit for taxes paid in Australia. If you’re claiming treaty benefits, you may also need to file Form 8833 to explain your tax position.
Key points to consider include the “saving clause,” which allows the US to tax your worldwide income, and rules around foreign trusts and investment income. Superannuation also interacts with the Australian social security system, which may affect your retirement planning.
Are dividends from Australian companies subject to US tax?
Yes, dividends from Australian companies are subject to US tax. Even if you’ve already paid taxes on the dividends in Australia, you still need to report them to the IRS.
What are the tax obligations for non-residents in Australia?
Your tax obligations can include paying taxes on income earned within Australia, such as dividends, interest, and royalties.
- Australian-Sourced Income – You must pay tax on money earned from work, business, or property in Australia.
- PAYG Withholding – Employers in Australia deduct Pay-As-You-Go (PAYG) taxes from your paycheck.
- Dividend Withholding Tax – If you earn dividends from Australian investments, part of the tax is withheld before you receive payment.
- Capital Gains Tax (CGT) – If you sell property in Australia, you will likely pay a higher tax rate than residents.
- Interest and Royalty Tax – If you earn interest, dividends, or royalties, the Australian government may withhold part of it as tax, usually between 10% and 30%.
Your tax status depends on how long you stay in Australia and whether you maintain ties to the country, such as owning property or having a permanent job.
How can American expats in Australia file their US taxes?
If you’re an American living in Australia, you still need to file a US tax return every year, even if you pay taxes in Australia.
The US requires its citizens to report worldwide income, so you must include any earnings, investments, and bank accounts you have overseas.
What do you need to file?
- Form 1040 – This is the standard US tax return form that all citizens must file.
- Foreign Earned Income Exclusion (FEIE) – If you live and work in Australia, you may be able to exclude up to US$130,000 of foreign income from US taxes in 2025.
- Foreign Tax Credit (FTC) – If you pay taxes in Australia, you can use this credit to reduce or eliminate U.S. taxes on the same income.
- FBAR (Foreign Bank Account Report) – If you have more than US$10,000 total in foreign bank accounts at any time during the year, you must report it to the US Treasury.
- Superannuation (Retirement Savings) – The US may tax Australian superannuation accounts differently from Australia, so they often require additional forms.
When are US taxes due?
- April 15 – Standard US tax deadline.
- June 15 – Americans living abroad automatically get an extra two months to file.
- October 15 – If needed, you can request another extension for more time.
