15 ways to lose Australian tax residency status

One benefit of becoming an Aussie expat is that moving to your new country could have significant tax benefits. But before you can reap the benefits of a lower taxing country, you’ll need to convince the Australian government that you are no longer regarded as a resident.

But it’s not as simple as just getting on that plane, setting up camp outside of Australia and telling the government that you’re now a non-resident.

Australia has four residency tests all of which you need to fail tonne considered a non-resident for Australian tax purposes! Pass one test and you’ll remain an Australian tax resident.

The four residency tests are as follows:

– the ‘resides’ test,
– the domicile test,
– the 183 day test, and,
– the Commonwealth superannuation test.

If these tests, the one test that most expats commonly face difficulties with, is the domicile test which in short states that if your domicile Is Australia, then you are tax resident in Australia, UNLESS you have a permanent place of abode outside Australia.

Without going into too much detail, typically if you were born in Australia and /or hold an Australian passport, your domicile will be Australia and thus you will be tax resident in Australia, unless you have a permanent place of abode outside Australia. Unfortunately the term’permanent place of abode’ isn’t defined in Australian tax legislation and so, we need to turn to case law and tax office rulings to understand what this means.

The relevant tax ruling that discusses the ATO’s interpretation of the term ‘permanent place of abode outside Australia’ is IT 2650 Income Tax Residency: Permanent Place of Abode Outside Australia.

Take a read and you’ll quickly discover that determining whether a person has a permanent place of abode out of Australia or not is unnecessarily subjective and grey! The ruling states that to determine residency under the domicile test a taxpayer must weigh up the facts and circumstances of that person’s life. Read further and you’ll discover that there’s no one factor alone that determines tax residency, but instead all factors must be considered and weighed against each other, ultimately swaying the balance to residency or to non-residency!

Crikey! Talk about confusing right? So what can you do to sway the balance of your circumstances towards becoming a non-resident?

Firstly, if you don’t set up a permanent home in your new country, you’ll still be regarded as an Australian resident for tax purposes. This will mean that any income you earn both in Australia and internationally will need to be shown on an Australian tax return.

So to be treated as a foreign resident for tax purposes, you need to fully satisfy Australian authorities that you really have left the country permanently.

So how can you demonstrate that to the Australian Taxation Office?

Here are 15 potential factors that alone won’t cause you to be non-resident but that when taken together, may assist in stating the case that you really are off for good and have become a non-resident!

1. Buy a one-way ticket to your new country and try to avoid returning to Australia too often.

2. Buy a home or sign a long-term lease.

3. Sell your Australian home or lease it out long-term.

4. Properly resign from your Australian job.

5. Buy a car in your new country.

6. If your financial and investment affairs are simple, simply close your Australian bank accounts and cancel your Aussie credit cards.

7. Open bank accounts in your new country and apply for local credit cards.

8. Sell the furniture from your Aussie home, or ship it all to your new country.

9. Pull out of your Australian sporting and social clubs, and sign up with equivalent clubs and hobby groups in your new country.

10. Take the whole family – wife, partner or children – with you.

11. Enrol your children in school in your new country.

12. Apply for a drivers license in your new country.

13. Advise Australian government agencies, such as Centrelink and Medicare, that you have left the country permanently.

14. Advise the Australian electoral commission that you want your name taken off the electoral role because you are leaving Australia.

15. Stop making Medicare claims, cancel your private Australian health insurance policies, and sign up for local services in your adopted country.

Finally, if you need any more help with establishing your absence permanently, contact Expat Tax Services today for the advice you need.

Shane Macfarlane CA
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