That investment strategy your mate back home swears by? The family trust your parents set up? The extra super contributions your Australian financial advisor recommended? If you're living in the US, all of these could be creating tax headaches you don't even know about yet. Here's what to watch out for before you make any financial moves back in Australia.
Many financial strategies that make perfect sense under Australian tax law can trigger additional reporting requirements, penalty tax rates, or unexpected obligations on your US return. The issue isn't that you can't build wealth in Australia while living in the US — you absolutely can. You just need to understand the traps before you walk into them.
1. Non-US Indirect Investments
If you hold non-US managed funds as an individual with US tax obligations, the IRS may classify them as Passive Foreign Investment Companies (PFICs). That classification comes with penalty tax rates and serious reporting requirements that can make an otherwise straightforward investment extremely expensive from a tax perspective.
This PFIC treatment can also apply to other investments held outside the US, including Exchange Traded Funds (ETFs), Retail Property Trusts (like A-REITs), Listed Investment Companies (LICs), and stapled securities.
Direct share investments held outside the US can sometimes avoid PFIC treatment, but it's not automatic. You need to fully understand the PFIC rules before assuming a direct share strategy is safe.
2. Paying Down Australian Debt
This one catches a lot of people off guard. If you make a large lump sum repayment or refinance your Australian loan, there can be US tax consequences — even if you haven't made any actual profit.
Here's how it works. Say you take out a $1M loan to buy property in Australia when the US dollar is at parity with the Australian dollar (1 USD = 1 AUD). You keep the loan as interest-only. Five years later, you receive an inheritance and decide to pay the loan off in full. The loan balance in AUD is still $1M, but because of currency fluctuations, the US dollar value of that loan is now only $800K.
That $200K “reduction” in USD terms? The IRS can treat that as a taxable gain on your US return. You haven't made any money. The loan balance in Australian dollars hasn't changed. But in the eyes of the US tax system, you've realized a foreign currency gain — and you may owe tax on it.
3. Property
If you own property in Australia while living in the US, rental income will be taxed at non-resident Australian tax rates, which range from 30% to 45%. Negative gearing losses in Australia can still be carried forward and used to offset future Australian income once you return, but they won't help you while you're stateside.
Selling property as a non-resident gets even more complicated. You may not be eligible for the 50% CGT discount in Australia for the portion of time you owned the property as a non-resident, meaning the tax rate on that portion could be 30%–45%.
And here's the big one that a lot of people miss: if you sell your family home while you're a non-resident of Australia, the main residence CGT exemption does not apply. This changed in 2020, and it applies regardless of how long you lived in the property before you moved overseas. Your family home — the one you assumed was exempt — is not exempt if you sell it while you're a non-resident.
On top of the Australian tax, you'd also be assessed for US federal taxes if you're a US tax resident. You can use the taxes you owe in Australia to offset the US federal liability through foreign tax credits, but you likely won't be able to offset any US state-level taxes that are also due.
4. Superannuation
Super is one of the most complex areas for Australians with US tax obligations, largely because the IRS has never made a clear determination on exactly how it should be treated.
Generally, the earnings within your super fund will either be taxed each year as part of your US income tax return, or when you eventually draw down in retirement. Either way, it's not invisible to the IRS just because it's in a super fund.
Where it gets particularly tricky is with personal contributions. If your personal contributions to super exceed what your employer puts in, your fund could be classified as a “Foreign Grantor Trust” for US tax purposes. That means the IRS looks through the structure and taxes the earnings in your hands personally, which adds filing complexity and accounting costs to your US return.
5. Self-Managed Super Funds (SMSFs)
SMSFs offer more flexibility and control over your retirement savings, but for US tax purposes they're almost certainly going to be treated as Foreign Grantor Trusts. The IRS will look through the structure and tax the earnings directly to you as an individual. On top of that, the investments held within the SMSF will also be scrutinized for PFIC treatment (see the section on non-US investments above), which can compound the complexity significantly.
6. Family Trusts
Family trusts are a popular tax planning tool in Australia because they offer flexibility in distributing earnings across your family group. But if you're a US taxpayer who established the trust, or who contributed capital to it, the IRS may classify it as a Foreign Grantor Trust — meaning they'll look through the structure and attribute the trust's earnings directly to you on your US return.
There's an additional layer for non-residents of Australia: you may pay more tax on shares or managed funds owned through a family trust than if you held those same assets in your personal name.
Family trusts can still offer benefits like asset protection and Australian tax planning, but the cross-border implications are highly complex. This is definitely one where you need specialist advice before making any moves.
7. Corporate Structures
If you own a business in Australia through a corporate structure, US tax law adds another layer of complexity. US taxpayers need to consider Controlled Foreign Corporation (CFC) rules for businesses based outside the US.
Your Australian company may be classified as a CFC if the corporation is more than 50% owned by US persons, and each US person owns at least 10% of the vote or value of the company (with attribution rules applying). CFC treatment leads to more complex reporting and can change how the business income is taxed under US law.
If you're a US taxpayer setting up or running a business in Australia, advice from a cross-border accountant isn't optional — it's essential. You need to work out the right structure for both Australian and US tax purposes from the start.
What Does This All Mean?
Look, this is complicated. That's the reality of building wealth across two tax systems that don't always talk to each other. But it's not impossible — you just need to make informed decisions rather than assuming what works in Australia automatically works for your US taxes.
The key takeaway: before making any significant financial moves involving Australian investments, property, super, trusts, or business structures, get advice from professionals who understand both jurisdictions. A great Australian financial advisor who doesn't understand US tax law can inadvertently create expensive problems, and vice versa.
For cross-border financial advice, reach out to the team at Apt Wealth Partners. They specialize in helping Australian expats navigate exactly this kind of complexity.
Tell them that Josh sent you (and he knows nothing about cross-border wealth management.)
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.
