A reader asks,
“I’m currently studying in undergraduate university in the U.S., where I hold my only citizenship. I was thinking about studying abroad, probably in Australia. I was thinking about going from around Jan.1-December 31st of 2009, or from Sept.1 08-Sept.09. I receive financial aid grants from the university/government(?), but the school financial office says those are never taxed the way they do it, so presumably it’s a non-issue for Australian as well as U.S. tax. I think if I study abroad everything is billed to my U.S. university account which is where the grants are credited to. So while in Australia I might want to focus on poker, both live and online. I was wondering what kind of liability I’d be looking at, I’m guessing I could get the U.S. exemption if I am there for the whole year as long as my income is less than ~82k? And after reading my understanding is that it’s unclear but unlikely that people have liability for poker in Australia. If you can help elucidate the rough idea for the situation I’d be in I would greatly appreciate it.”
There are several things you need to consider. First, Australia only taxes professional gamblers. So if you’re not a professional gambler, your gambling income will not be taxed by Australia. However, if you are a professional gambler, and if you were required to pay Australian income tax, you would have to pay income tax on the gambling. (I don’t know anything about whether your scholarships would be taxable in Australia; your university can probably answer that question. I also do not know if full-time students are exempt from Australian income tax.)
As a US citizen, you must file tax returns each year, whether you reside in the US or Australia. When you write about the “U.S. exemption,” I assume you mean the foreign earned income exclusion. That will pose a problem for you, as gambling income is not considered earned income, and only earned income is eligible for the exclusion. (There are other requirements in order to take the foreign earned income exclusion.)
Now, a professional gambler living abroad (one who files a Schedule C) can take the foreign earned income exclusion ($85,700 in 2007). However, a professional gambler must pay self-employment tax on his net gambling income.
So without knowing more about your entire situation, it appears on the surface that you are not a professional gambler (as you are a full-time student). Thus, your gambling winnings will remain taxable whether you are studying here or in Australia.