When it comes to lodging Australian expat tax returns, it’s important to understand whether you are an Australian resident for tax purposes or not.
Why is this important? Well, first and foremost, if you are taxed as an Australian resident, you will be required to pay tax on your worldwide income from all sources at high Australian tax rates.
Non-residents however, are only taxed on income earned and sourced specifically in Australia.
As an Australian expat, most of your income is likely to be from overseas. Thus, declaring yourself as a non-resident will ensure that you get the full benefit of the lower tax regime in your country of residence. Having said that, it’s always worth checking your circumstances with us first, because, recent budget announcements means that the benefits of non-residency are not so clear-cut nowadays!
If you are working overseas, paying tax as an Australian Resident often means you will pay tax on your overseas income without wreaking any of the benefits that come with it, such as access to lower overseas tax rates, and no practical access to Australia’s medicare system.
As the ATO carries out in-depth analyses and audits of Australian expats, (particularly audits relating to an expat’s residence status), it’s vital that you prove you really are a non-resident for Australian tax purposes when lodging your tax returns.
Am I an Australian resident for tax purposes or a non resident? Here’s ten things to consider . . .
1. Submit evidence of your permanent living situation
Long-term rental agreements, mortgages and issues of correspondence to the same address will all act as evidence of having a permanent residence overseas.
2. Electoral Registry
Remove or update your details on the Australian electoral roll to show that you are no longer considered an Australian permanent resident.
3. Take ATO residency tests
The primary test that the Australian Tax Office provides is the ‘Resides Test’. If you don’t satisfy the resides test, the ATO will expect you to take one of three other tests to prove your residency status:
- ‘The Domicile Test’,
- ‘The 183 Day Test’, and
- ‘The Commonwealth Superannuation Test’
You only need to pass one of these four tests to be considered as a resident of Australia. If you don’t satisfy any of these tests, then you may be considered a non-resident for Australian tax purposes.
4. Sell or lease out your Australian property
Selling or leasing out your property so that it is not available for your use, assists to provide evidence that you are not considering returning to Australia soon. Bear in mind that there may be Capital Gains Tax issues to consider in both cases, whether you choose to sell or lease out your property, so it’s wise to check in with us first.
5. Evidence of overseas finances
Open an overseas bank account and an overseas credit card (if applicable) and live day to day from those accounts instead of via your Australian bank accounts.
6. Buy a one-way ticket
A one-way ticket out of Australia shows to the Australian Taxation Office that you are not considering returning anytime soon.
7. Provide ATO with foreign address
This could be a long-term rental property or real estate.
8. Foreign drivers license
Obtain a driver’s license in your country of residency.
9. Acquire overseas investment assets
Whilst we cannot provide you with any specific investment advice, it may be a good idea to begin building up a portfolio of overseas investments, to support that you’ve largely cut ties with Australia.
10. Health insurance
Obtain health insurance in your country of residence and don’t make claims on Medicare.
Why is Australian tax residency so complex? I’m confused
Working out whether you are an Australian resident for tax purposes is a unfortunately, unnecessarily complex.
What makes determining your residency status so difficult is that whether you are an Australian resident for tax purposes is that residency is very much based around the facts and circumstances of your life, and as your facts and circumstances differ from every other expat, there’s no hard and fast rules to determine your residency status.
Having said that, Australia does require a person to pass at least one of Australia’s four residency tests (see point 3 below). However this leads to another problem that complicates residency unnecessarily – for two of the main tests of residency (‘Resides’ Test and the ‘Domicile’ Test), the phrases used in those tests are NOT defined anywhere in Australia’s tax acts. So to understand how to apply those tests, it means that you need to turn to the courts to understand historical and recent case-law relating to residency, and you also need to turn to various tax-rulings published by the Australian Taxation Office!
Combine those two issues, i.e. that residency is based on your facts and circumstances, that differ from every other expat on earth, and that half of Australia’s tax residency tests are unnecessarily subjective and vague, defined by principles developed in common-law court cases (that evolve over time), and it means that for most people, determining their own residency status is complex and potentially fraught with danger if you get things wrong!
Even for many tax accountants, determining whether a person is an Australian resident for tax purposes or a non-resident for Australian tax purposes, is difficult.
Determining a person’s residency status is akin to trying to hit a rapidly moving target on a spinning wheel, from a rapidly moving platform, that is spinning in the opposite direction. In short, it’s a frustrating, complex, and difficult task, at best!
Confused about whether you are an Australian Resident for tax purposes? Relax . . . our team are here to help
Speak to an Australian expat tax specialist today
If you’re an expat or potential expat, you’ll already know that residency is unfortunately quite a complex issue as far as Australian taxes go, and because of the disparity in how residents are taxed (on worldwide income) versus non-residents (only on Australian source income), getting it wrong can be very costly.
So, resolving the issue of your tax residency status is incredibly important.
As such, if you’re confused about Australia’s complex residency rules we highly recommend that you book a “Residency – Am I a resident of Australia for Australian taxation purposes” tax consultation with one of our tax specialists in order to get to the bottom of the issue and put your mind at ease.
Book your residency consultation today
Simply fill out our booking form (below) and choose the “Residency – Am I an Australian tax resident” consultation (our most popular appointment), with us and our team will have your tax residency issues sorted in no time.
Please note: To simplify the booking process, the available appointment times (listed above) will be displayed in your timezone, not ours!
What will we discuss in our residency consultation?
When you book a residency consultation with us, the agenda is fluid and can be adjusted to suit your needs, but as a guide, the topics that you can expect us to discuss include the following:
- your circumstances as an Australian expat or potential expat (if you’re considering a role overseas)
- whether or not you are likely to be deemed a resident or non-resident for Australian taxation purposes based on those circumstances,
- tax traps and the taxation consequence of your residency status relating to the income that you earn and the assets that you own,
- potential tax planning opportunities available to you based on our opinion of your residency status, and
- recent legislative changes relevant to non-residents (e.g. CGT changes for Australian property, HECS/HELP debt reporting obligations, Foreign resident CGT Withholding legislation etc),
- we’ll discuss and answer any questions that you both may have.
As you can see, there’s a lot of tax issues to consider, and sadly, these issues are complex and challenging. If you’re thinking of moving overseas, be sure to book a ‘Residency’ tax consultation with us today.
We’ll be able to step you through the issues so that you’ll be able to minimise your taxes, maximise your wealth, and take advantage of all the various tax opportunities that are available whilst minimising the risks!
Get in touch with our Expat Tax Services team today!
In short Shane's a tax and software techno-geek, who recognised that Australian expats were unable to obtain the specialist advice and quality service, that they needed from their accountants. Accordingly, Shane founded Expat Tax Services to provide Australian expats with access to specialist, quality advice at fair and reasonable prices (no hourly rates, fees quoted upfront with unlimited support included) . . . receive the support and advice you need without having to take second-mortgage to pay your accountant's bill! Speak to Shane & the team today.