For many Australians who are or want to live and work in the US, obtaining a Green Card is the ultimate goal. And it can certainly make life easier while you are living stateside. However, if you intend to return to Australia, there are some additional considerations.
Ongoing US tax requirements
As a US Lawful Permanent Resident (or Green Card holder), you remain under the US tax system regardless of your location. This means you must file US tax returns on worldwide assets and income even if you no longer live in the US.
Remaining a US resident for tax purposes after returning to Australia can have several implications when earning income and buying assets here on home soil. Therefore, it’s essential to be aware of the potential pitfalls when making long and short term financial decisions. You can read more here.
You can choose to relinquish your Green Card upon exiting, but it’s important to note that exit taxes may apply. These taxes may apply to Australian Green Card holders who have held their Green Card for a period deemed to be eight years. And I say ‘deemed to be’ because the calculation process isn’t straightforward.
Extra considerations for long-term permanent residents
For US tax purposes, a long-term permanent resident is a Green Card holder who has held the legal right to reside in the US for at least eight of the past 15 years. This doesn’t necessarily mean you lived in the states for the entire period, simply that you had the legal right to do so.
How the eight years is calculated isn’t simple either, as holding a Green Card for any part of the year will likely be considered a full year. So, for example, you reached the eight-year threshold if you received your Green Card on 15 December 2015 and left the US on 10 January 2021 because the 16 days in 2015 and 10 days in 2021, respectively, are each counted as one year.
Once you are deemed a long-term permanent resident, you may be required to pay the exit tax.
Understanding exit taxes for ‘covered expatriates’
If you are a long-term permanent resident, you may be deemed a ‘covered expatriate’, in which case exit taxes may apply. These taxes are typically calculated as a percentage of your assets above the threshold for a given tax year and can be quite significant. In some cases, retirement accounts are deemed to have been fully distributed on the day before expatriation and taxed accordingly.
Typically, exit taxes may be applicable to long-term residents who meet any of the following criteria:
- An average annual income tax of USD178K or more for the past five years (applicable to those who relinquish residency in 2022 and indexed each year). It’s important to note that this figure pertains to average tax liability, not income earned.
- An individual net worth of USD2M as at the date the Green Card is relinquished.
- Failure to confirm compliance with US federal tax filing obligations for the past five years, which must be confirmed by a specific filing to the IRS.
More information is available on the IRS website here. However, it is a complex area and getting expert legal, financial and accounting advice is recommended well before making any moves.
Thinking of returning to Australia from the US? Our experienced expat financial planners can help you navigate complexity to achieve your financial goals.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice or a recommendation to purchase a particular product. 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 Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.