Financial considerations when splitting your time between the US and Australia

Splitting your time between the US and Australia is a decision many people make, whether for work, for family or for the life they want in retirement. It’s entirely achievable. What makes it complex is that you are no longer dealing with one financial system, but two, and they were not designed to work together.

The problems we see usually stem from sound decisions made in isolation. Perhaps an accountant who understands US tax but not how it interacts with your Australian position, or a solicitor preparing a will without knowing another one exists overseas. Each piece of advice is good on its own, but it doesn't hold when combined. Here’s what to work through before you commit to anything.

Everything starts with your tax residency

Until you know which country will treat you as a tax resident, and where you will pay tax as a result, very little else can be decided. That single question shapes how you build wealth, where you can invest and what you will be entitled to later.

There is no general rule, because the answer depends entirely on your circumstances. An even split of the time is one situation, nine months in one country and three in the other is another, and an extended period of time is different again. Each produces a different outcome, which is why specific advice from professionals who understand both systems matters before anything else is settled.

Understanding how the two tax systems interact

Once your residency is clear, you can see what each country is entitled to tax.

Australia taxes residents on their worldwide income and non-residents only on Australian-sourced income. The US takes a broader view. If you are a citizen or a green card holder, it will tax you on your worldwide income regardless of where you live.

Tax rates also differ at different income levels and the US allows you to file individually or jointly as a married couple. The option you choose can change your position materially, so it’s important to consider both.

The US–Australia tax treaty ensures you will not pay tax twice on the same income. That is an important protection, but it doesn’t mean the two systems align. It’s in the gaps between them where expensive mistakes are made.

Foreign tax credits

Australian tax rates are generally higher, with the top marginal rate at 47 cents in the dollar, so you will often pay more tax here than you would on the same income in the US. That difference can accrue as foreign tax credits, which may help you manage US tax obligations that arise in later years. Not every accountant accumulates and maximises these over time, so it’s a question worth asking.

Deductions and exemptions

The same principle applies on the Australian side. Understanding what you can deduct against your income, and what you can still claim on a property you have held, ensures you are not paying more than you need to.

Where to invest and where to hold your wealth

Where you invest depends on which system you sit within. If you are within the US system and investing in Australia, there are limitations on what you can hold, with passive foreign investment company rules the most common trap. Sitting within the US system may open you to greater diversification and the largest share market in the world. Neither position is inherently better. What matters is understanding the tax treatment attached to each before you decide where to build your wealth.

Currency forms part of the same decision. Wherever possible, build wealth in the currency you will spend and hold sufficient assets in each country so you are not regularly converting between them. Every conversion carries a cost in fees and exposes you to currency risk. Where a transfer is necessary, a specialist foreign exchange service will generally cost you less than a bank.

Protecting what you have built

Estate planning across both countries

If you hold assets in both countries, you will need estate planning documents in both. Having a will in each, however, is not the same as having an estate plan that works. We regularly see wills prepared separately that contradict one another. In some cases they negate each other entirely. Your solicitor needs to know what exists on the other side so the documents operate together.

Private health insurance

In the US, employers will often fund private health cover, with a small contribution from you where required. In Australia, you may be able to suspend your cover while you are overseas. Speak with your provider before making changes, as cancelling can mean re-serving waiting periods or meeting age-related loadings on your return.

Personal insurances

Your life, trauma, TPD and income protection cover warrants the same review. The question is whether you remain adequately covered if illness or injury prevents you from working while overseas. Some policies require you to return to Australia if you are on claim beyond a set period, and every insurer treats time abroad differently.

Social security and Centrelink entitlements

Your entitlements come back to residency once again. Under the rules as they stand, US Social Security generally remains accessible if you have met the working requirements, even as a non-resident. Centrelink requires Australian residency, and an extended absence can see payments cease, leaving you to reapply.

The role of advice

A client came to us recently after decisions were made by an adviser who did not understand the US implications. Resolving it will cost approximately $9,000 in filing fees alone. The whole situation was avoidable.

This is where coordination matters. Your tax position, your investments, your estate plan and your insurances all respond to the same set of facts. They need to be considered together rather than in separate conversations on opposite sides of the world. An adviser who understands both jurisdictions can bring those elements into a single plan and work alongside your tax and legal professionals in each country, rather than leaving you to hold it together.

If a life across the US and Australia is on your horizon, speaking with an Apt adviser early will help ensure your decisions work together from the outset.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.