Leaving Australia? The Taxman Has Packed a Bag Too

Here’s something nobody tells you at the airport.

You can sell up, quit the job, hug your mum at the departure gate and fly off to a shiny new life in Singapore, Dubai or a beach shack in Bali. And the Australian Tax Office can still have its hand halfway into your back pocket the entire time you’re gone.

Look, we Aussies are wanderers. We chase work, love, surf and a decent cup of coffee to every corner of the planet. Maybe you’re heading off for two years. Maybe you’ll fall for the place and never come home. Either way, before you go, you need to get your head around one deeply unsexy thing: Australian tax residency.

Grab a cuppa. This won’t take long, and it could save you a fortune.

First up: tax residency has nothing to do with your passport

This trips people up constantly, so let’s nail it now. Being an Australian citizen and being an Australian tax resident are two completely different things. You can be a born-and-bred Aussie, blue passport and all, and still be treated as a non-resident by the ATO. The reverse is true too.

And here’s the kicker: residency is worked out every single financial year. So you don’t sort it once and forget it. Every year you’re away, the question gets asked again.

The four tests (pass any one, and you’re in)

The ATO uses four tests to decide if you’re a tax resident. You only have to pass one of them to be caught in the net. Which means to actually escape, you have to fail all four. Most people assume that’s easy. It usually isn’t.

Test 1: The resides test

This is the main one, and it’s exactly as woolly as it sounds. The ATO looks at whether you “reside” here in the ordinary, everyday sense of the word. Where’s your life, really? They weigh up your family, your job, your assets, your habits, and how you’ve set up your day-to-day affairs. Nobody factor decides it. They look at the whole messy picture and make a call. As a rough rule of thumb, heading off for two years or more with the family in tow starts to look like you’ve genuinely left.

Test 2: The domicile test

Everyone has a “domicile”, which is basically your permanent legal home. If your domicile is Australia, the ATO treats you as a resident unless you can show you’ve set up a permanent place of abode somewhere else.

Sounds simple. It isn’t. The phrase “permanent place of abode” isn’t actually defined anywhere in the tax law, so working out what it means is a fun journey through decades of court cases and tax rulings. Of all four tests, this is the one that trips up expats the most. Renting a serviced apartment in Hong Kong for eighteen months while you “see how it goes” probably won’t cut it.

Test 3: The 183-day test

This one’s at least got a number in it. If you’re physically in Australia for 183 days or more during the income year (that’s 1 July to 30 June), you’re presumed to be a resident. The days don’t need to be in a row, and both your arrival day and your departure day count. So all those quick trips home for Christmas and the footy finals add up faster than you’d think.

There’s an out: you can still be a non-resident under this test if the ATO accepts that your usual place of abode is overseas and you’ve got no plan to settle back here. But don’t count on waltzing through it.

Test 4: The Commonwealth super test

This is a niche one. If you’re an Australian Government employee posted overseas and contributing to the old Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS), you’re a tax resident, full stop, no matter how long you’ve been away. And it can rope in your spouse and your kids under 16 as well. Diplomats and certain public servants, this means you.

So what does all this actually cost me?

Here’s where it gets real.

If you’re a tax resident, Australia taxes your worldwide income and capital gains. Every dollar, wherever you earned it.

If you’re a non-resident, Australia only taxes your Australian-sourced income and gains on “taxable Australian property” (think real estate here). Sounds better, right? Sometimes. But non-residents cop a sting most people don’t see coming: you get no tax-free threshold. None. While a resident pays nothing on their first $18,200, a non-resident is taxed from the very first dollar, starting at 30 per cent (for the 2025 to 2026 year).

Picture it. You’ve got an Australian rental pulling in $50,000 a year. As a non-resident, you’d hand over $15,000 of that in income tax. An Australian resident on the same income pays a bit under $6,000 before any offsets. Same property. Wildly different bill. The one upside: non-residents don’t pay the 2 per cent Medicare levy.

The nasty surprise hiding in your family home

This is the big update, and it’s the one that makes me wince.

It used to be that you could move overseas, hang onto the family home, and still sell it down the track without paying capital gains tax, thanks to the main residence exemption. Those days are gone.

Since 1 July 2020, if you sell your home while you’re a foreign resident for tax purposes, you generally cannot claim the main residence exemption at all. Not a partial slice for the years you actually lived in it. Nothing. And we’re not talking about the gain since you left. The tax can apply to the entire gain across the whole time you owned the place, right back to the day you bought it.

There are narrow exceptions under what’s called the “life events test” (things like terminal illness, death, or a relationship breakdown), and only if you’ve been a foreign resident for six years or less. For most people, though, the message is brutally simple. If you’re moving overseas and might sell the family home while you’re away, get advice before you go, because selling it before you stop being a resident can be the difference between a tax-free gain and a six-figure tax bill.

One more thing to know: since 1 January 2025, when a foreign resident sells Australian property, the buyer is legally required to withhold 15 per cent of the sale price and send it to the ATO, unless you’ve got a clearance certificate. Get that paperwork sorted early or you’ll be chasing your own money for months.

The exit tax nobody warns you about

Right, brace yourself for this one.

The day you stop being an Australian tax resident, the ATO does something sneaky. It pretends you sold pretty much everything you own that isn’t Australian real estate. Your overseas shares, your international ETFs, your crypto, most of your directly held Aussie shares. The lot. This is called a “deemed disposal”, and the tax world knows it as CGT event I1.

You’re treated as having sold those assets at their market value on the day you left, and any paper profit gets taxed, even though you haven’t actually sold a thing or seen a cent.

You do get a choice. You can cop the tax now (and you may still get the 50 per cent CGT discount for the time you held the assets as a resident), or you can elect to defer it, which keeps those assets inside the Australian tax net until you actually sell them or move back home, whichever comes first. Each path has trade-offs, and the right one depends on where you’re moving and what the tax looks like over there. This is not a guess-and-hope situation.

A shake-up has been threatened for years (don’t hold your breath)

Back in the 2021 to 2022 Federal Budget, the government announced it would scrap these residency tests and bring in a “modernised” framework. The headline change was a simple bright-line rule: spend 183 days or more in Australia and you’re a resident, with some secondary factor tests for everyone in between.

It also floated a stickier, harder-to-leave version of residency for people who’ve been residents for years. Sounds tidy. The problem? As at June 2026, it still hasn’t been legislated. There’s been a change of government, other priorities have jumped the queue, and nobody can tell you the final design or the start date, or even whether it’ll happen at all.

My take: plan around the rules that exist today, not the ones that might exist tomorrow. If the new framework lands, deal with it then.

The bottom line

Leaving the country doesn’t switch off your relationship with the ATO. It just changes the terms, and not always in your favour. The tests are fuzzy, the home-sale trap is savage, and the exit tax catches people who never saw it coming.

None of this means don’t go. Go. Chase the adventure. Just don’t fly off assuming the tax stuff sorts itself out, because it won’t, and the ATO has a very long memory.

Questions?

If you’re wondering how any of this applies to your own situation, get in touch and send us a message. We’re happy to help you work it out before it becomes a problem.

Disclaimer: This article is general information only and does not take your personal circumstances into account. It is not tax, financial or legal advice, and it should not be relied on as such. Tax residency outcomes depend heavily on individual facts, and the rules described here can change. The proposed residency framework discussed above had not been legislated as at June 2026. Before making any decision, please seek advice from a registered Australian tax agent about your specific situation.

References

Australian Taxation Office, “Your tax residency”. Available at: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency

Australian Taxation Office, “Residency tests” (the resides, domicile, 183-day and superannuation tests). Available at: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/residency-tests

Australian Taxation Office, “Residency – the 183-day test”. Available at: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/residency-tests/residency-the-183-day-test

Australian Taxation Office, “Residency – the superannuation test”. Available at: https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/residency-tests/residency-the-superannuation-test

Australian Taxation Office, Taxation Ruling TR 2023/1, “Income tax: residency tests for individuals”.

Australian Taxation Office, “Tax rates – foreign resident”. Available at: https://www.ato.gov.au/tax-rates-and-codes/tax-rates-foreign-residents

Australian Taxation Office, “Main residence exemption for foreign residents”. Available at: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/main-residence-exemption-for-foreign-residents

Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Act 2019 (Cth), No. 129 of 2019, Schedule 1, which removed the main residence CGT exemption for foreign residents for disposals after 30 June 2020 (subject to transitional rules and the life events test). Available at: https://www.legislation.gov.au/Details/C2019A00129

Australian Taxation Office, “Your residency status and CGT” (deemed disposal on ceasing residency). Available at: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/your-residency-status-and-cgt

Income Tax Assessment Act 1997 (Cth), section 104-160 (CGT event I1) and section 104-165 (choice to defer on ceasing to be an Australian resident).

Australian Taxation Office, “Foreign residents and capital gains tax” (including foreign resident capital gains withholding at 15 per cent from 1 January 2025). Available at: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax