One of the most common questions that we receive is ” Do I need to lodge a tax return while living overseas?”.
This seems like an easy question that should come with a yes/no answer, but of course, it’s Australian tax, so that it means that there’s no simple answer!
Am I an Australian tax resident?
Do I need to lodge a tax return while living overseas? The first step is to determine whether or not the Australian Taxation Office considers you an Australian resident when figuring out who owes them money. You will be considered a resident if one or more of the following is true:
- You reside in Australia
- Your permanent home is in Australia
- You have been in Australia for more than half of the financial year
- You or your spouse are a government employee working at an Australian post overseas.
If you meet ANY of the above criteria, you will be required to complete a tax return.
What if I am a non-resident for Australian tax purposes?
If you’re a non-resident, you’ll typically have one of two obligations to fulfil. Since you have an Australian tax file number, the ATO will be expecting a return of one sort or another from you. You’ll need to either lodge an tax return, or a ‘Return Not Necessary’ form for the year in question.
It’s easy to assume that you don’t need to do anything whilst you’re living and working overseas as an expat however nothing could be further from the truth!
Since you have a tax file number, if you do nothing, the ATO will by default, expect you to lodge a tax return, and a failure to do so can result in late lodgement penalties of up to $900 per return, so it’s a good idea to keep up to date!
So as a non-resident, do I need to lodge a tax return or a ‘return not necessary’ form?
Whether you need to complete an Australian tax return or lodge a ‘return not necessary’ form will depend on the type of income (if any) that you earn from Australian sources. Generally speaking, you will only be taxed on your Australian-sourced income and will only need to complete a tax return if you earn the following types of income:
- Income from Australian employment (where those activities are carried out in Australia)
- Income from rent on an Australian property
- Interest income (that has not had a 10% non-resident withholding tax deducted by your bank)
- Unfranked dividends (removing the accounting jargon, this basically means a dividend received from an Australian company that does not come with a tax credit attached)
- Capital gains on Australian assets
- Pensions or annuities from Australia, unless you are eligible for an exemption under a tax treaty
Just to be clear, Australian-sourced income streams on which tax has already been withheld – such as interest, dividends or royalties – will not require the completion of a tax return.
If you don’t generate any income sourced from Australia, then as a non-resident, your tax agent can lodge a ‘Return Not Necessary’ on your behalf. This will notify the ATO that you have not generated any income upon which Australian income tax is payable and by doing so, you will satisfy your lodgement obligations for that financial year.
What if I am a non-resident for Australian tax purposes but remain an Australian citizen?
Most Australian expats do not need to complete a tax return, particularly if their only Australian income is from interest and dividends.
If this describes you then you simply need to inform your financial institution and fund managers that you are no longer an Australian resident for tax purposes. They will ensure the correct tax is withheld.
You should also engage your tax agent to lodge a ‘Return Not Necessary’ form on your behalf so that the ATO marks your obligations as being complete for that financial year.
Will I be taxed twice?
Not typically, although it is possible. If you’re an Australian resident that generates foreign income, there’s a possibility that you’ll be double-taxed. However if your foreign income was earned in a country that has a Double Taxation Agreement with Australia, then usually, you’ll be able offset a portion of the tax paid in the foreign country against your Australian tax payable.
This can be a complex area of tax and it’s easy to make mistakes and end up paying more than you should! However, if you engage our team at Expat Tax Services to assist, there are ways we can help you to reduce this. To find out more please contact us for an appointment – we’ll be happy to help you answer the question ” Do I need to lodge a tax return while living overseas?” along with many more.