The ATO vs. IRS: 4 Key Differences Australian Expats Should Know
Most Australians are well-acquainted with the operations of the Australian Taxation Office (ATO). However, Australian expats who either move to or are already residing in the United States, often find that the US’ tax body equivalent, the Internal Revenue Service (IRS), is distinctively complex and difficult to navigate. In this article, we delve into the differences between these two tax authorities and shed light on how they impact expatriates.
Why it matters: As an Australian expat, understanding the difference between the ATO and IRS helps ensure you are in compliance, submit accurate and timely US tax returns, pay the correct amount of US tax, and avoid significant penalties.
1. Tax Jurisdictions
The ATO: In Australia, the ATO exercises jurisdiction over a single-layer of taxation.
The IRS: The United States’ tax system can have multiple layers of taxation. The IRS exercises jurisdiction at the Federal level while those residing in states with State income tax have an additional tier of taxation imposed by their respective State tax authorities e.g. California Franchise Tax Board. Some States such as Florida, Nevada, Washington, and Texas do not levy a State income tax so residents there only pay Federal taxes.
2. Expat Tax Obligations
The ATO: While expatriates residing in Australia are subject to higher tax rates than Australian citizens, their tax filing requirements are much simpler relative to the US tax filing requirements for expatriates.
The IRS: The US tax system is much more complex than the Australian tax system, especially when it comes to expat tax. Our Ultimate Tax Guide for Australians in the US covers key tax filing obligations for expats.
3. Filing Tax Returns
The ATO: Many Australian citizens can self-file their tax returns through the ATO portal, particularly if their financial circumstances are relatively straightforward. Individuals with more intricate situations involving Trusts, Proprietary Limited Companies, Self-Managed Super Funds, Rentals, and similar complexities often enlist the assistance of an Australian Tax Agent to manage their tax submissions.
A distinguishing feature of the ATO process is the availability of a dedicated portal for Tax Agents. This portal allows Tax Agents to monitor the progress of tax return submissions without needing power of attorney or additional authorization. Subsequent to an electronic submission, the ATO issues a Notice of Assessment to the taxpayer after a few weeks. This notice provides a comprehensive breakdown of the tax assessment, including details such as taxable income tax owed, existing tax credits, refund amounts, and relevant health-related adjustments.
The IRS: The IRS accommodates both electronic and paper tax return submissions. Electronic filings generally enjoy expedited processing times (approximately 3-4 weeks), unlike paper submissions which typically take considerably longer (at least 6 months). Thus, opting for electronic submission is often recommended for efficiency.
While the IRS offers the Free File program for taxpayers with straightforward situations, this avenue does not adequately cater to the unique tax circumstances of Australian expatriates. While third-party software such as TurboTax or SprintTax can be used, they are not advised for expatriates unless the filer has a sound understanding of expat tax obligations. US tax obligations for expatriates are typically much more complex and involved. Engaging an International Tax Accountant is strongly advised to effectively navigate potential pitfalls and avoid severe penalties.
Unlike the ATO, the IRS does not issue a formal Notice of Assessment. In the US, the submitted tax return serves as the de facto tax bill or refund determination.
4. Correspondence
The ATO: In the event of any discrepancies or concerns regarding tax returns, individuals can conveniently contact the ATO via phone, ATO account messaging, or even delegate the responsibility to their Tax Agent for prompt resolution.
The IRS: Correspondence from the IRS typically takes the form of physical mailed letters. Thus, handling IRS correspondence or pending refunds requires careful monitoring. The IRS’ phone-based communication is notoriously challenging, with physical mail remaining the primary mode of contact. Taxpayers can access their Online IRS Account to review balances and notices, although certain notifications may not be accessible through this channel.
Noteworthy developments are underway in the IRS landscape. The Inflation Reduction Act has allocated substantial funding—$80 billion over a decade—to enhance customer experience, efficiency, and digitization within the agency. This endeavor holds the promise of potentially mirroring the streamlined processing model employed by the ATO.
Conclusion
For Australians contemplating a move to the US or those already residing here, understanding the disparities between the ATO and IRS is important. The differences in tax return submission, tax tiers, communication avenues, and available resources, underscores the critical need for Australian Expats to be well-informed and prepared to successfully manage their tax obligations.
Disclaimer: Uptrend Advisory blogs and all other multimedia content is intended to provide general information and should not be construed as tax, accounting, financial, legal, consulting or any other type of advice regarding any specific facts and circumstances, nor should they be construed as advertisements for services.
