Australia is allowed to spy on US citizens.
US and Australia pool their collected intelligence. The US gives a list of names to Australia and asks if Australia has any information on those names.
This is pretty much how ECHELON worked, with UK, US, Australia, Canada and New Zealand all cooperating.
Apparently the current foreign minister Bob Carr, when recently asked about this "...did not respond directly to a question about whether the Pine Gap facility is being used as part of the PRISM program."[2]
Considering that one of the primary concerns of Pine Gap is monitoring "transmissions intended for communications satellites; and microwave emissions, such as long-distance telephone calls." I'd find it hard to believe it isn't a fairly major part of the PRISM system for the southern hemisphere.
[1]: http://en.wikipedia.org/wiki/Pine_Gap [2]: http://www.zdnet.com/au/australian-government-to-assess-pris...