Do Australian Expats Have to Pay Tax?
If you’re an Australian citizen who has moved overseas, you may be wondering whether or not you still have to pay tax in Australia. The answer depends on your tax residency status.
Understanding Residency for Tax Purposes
Determining tax obligations for Australian expats heavily relies on the concept of residency for tax purposes. The Australian Taxation Office (ATO) considers various factors to determine whether you are a resident or a non-resident for taxation purposes.
Factors include your behaviour during your time overseas, the nature and purpose of your presence abroad, the continuity or otherwise of your presence in the foreign country, and your ties with Australia.
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Australian Residents for Tax Purposes
If you are classified as an Australian resident for tax purposes, you are liable to pay tax on your global income. This includes income derived in Australia and overseas. Taxable income can come from various sources, such as employment, business operations, investments, and capital gains.
Australia has a progressive tax system, which means the tax rate increases as your income increases. In other words, the more you earn, the higher your tax rate.
Australian Non-Residents for Tax Purposes
If you are a non-resident for tax purposes, you only pay tax on income derived from Australia. Examples of Australian-sourced income include rental income from Australian properties, Australian bank interest, and dividends from Australian companies.
However, non-residents are not entitled to the tax-free threshold, and their income is taxed at a higher starting rate than residents.
Australian Residents and Non-Residents: What Income is Subject to Australian Tax?
Australian residents are subject to Australian tax on their worldwide income, regardless of where it is earned. This includes income from employment, business, investments, pensions, and capital gains.
Non-residents are subject to Australian tax on their Australian-sourced income only. This includes income from employment, business, investments, and capital gains that are derived from Australian sources.
Some examples of Australian-sourced income include:
- Income from employment in Australia
- Income from a business that is carried on in Australia
- Income from investments in Australian assets
- Capital gains on Australian assets
There are a few exceptions to the rule that non-residents are only taxed on their Australian-sourced income. For example, non-residents may be taxed on their worldwide income if they have a permanent establishment in Australia.
The Australian Taxation Office (ATO) has a number of resources on its website that can help you determine your residency status for tax purposes and the types of income that you are subject to Australian tax on.
Here are some links to the ATO website:
Double Taxation Agreements (DTAs) with the UK for Aussie Expats
Australia has Double Taxation Agreements (DTAs) with more than 40 countries. These agreements prevent dual residents from being taxed twice on the same income. If you’re an Australian expat living in the UK, you may be wondering how the Australian-UK DTA affects your tax liability.
The DTA works by providing a set of rules for how income earned in one country will be taxed in the other country. For example, if you earn employment income in the UK, you will usually be taxed on that income in the UK. However, if you also pay tax on that income in Australia, you may be able to claim a credit for the UK tax that you paid. This will ensure that you are not taxed twice on the same income.
The DTA covers a wide range of income, including employment income, business income, investment income, and pension income. However, there are some types of income that are not covered by the DTA, such as social security benefits and government pensions.
How Do I Claim a Credit for UK Tax?
If you have paid UK tax on income that is also taxable in Australia, you can claim a credit for the UK tax that you paid.
To do this, you will need to file a tax return in Australia and include a statement showing the amount of UK tax that you paid. The Australian tax office will then calculate the amount of credit that you are entitled to and apply it to your Australian tax liability.
Tax Implications on your Superannuation
If you’re an Australian expat, you should also consider the tax implications on your superannuation – Australia’s mandatory retirement savings scheme.
Generally, you can keep your super in Australia when you move overseas, and it will continue to be subject to the same rules. However, depending on the tax laws in your host country, your superannuation might be taxed differently.
Leaving Australia: The Capital Gains Tax (CGT) Rule
The ATO’s rules on Capital Gains Tax (CGT) for expats changed significantly in recent years. If you were a resident when you purchased a property but were a non-resident at the time of sale, you may not be entitled to the main residence exemption, resulting in a potential CGT liability.
Here are some things to keep in mind about the Capital Gains Tax (CGT) rule when leaving Australia:
- You may be liable to pay CGT on the disposal of assets that you own when you leave Australia. This includes assets such as property, shares, and investments.
- The amount of CGT that you pay will depend on the capital gain that you make on the disposal of the asset. The capital gain is calculated as the difference between the asset’s purchase price and its sale price.
- You may be eligible for a discount on the CGT that you pay, depending on how long you have owned the asset. For assets that you have owned for more than 12 months, you are eligible for a 50% discount on the capital gain.
- If you are a non-resident of Australia, you may be subject to a different CGT regime. Non-residents are generally only liable to pay CGT on assets that are taxable Australian property.
Exceptions to the Rules on Australian Tax Residency and Income
Here are some of the exceptions to the rules that Australian residents and non-residents are subject to Australian tax on:
- Non-residents with a permanent establishment in Australia: Non-residents who have a permanent establishment in Australia may be taxed on their worldwide income. A permanent establishment is a fixed place of business through which a business wholly or partly carries on its activities.
- Non-residents who are engaged in certain specified activities: Non-residents who are engaged in certain specified activities, such as promoting or operating casino gaming junket arrangements, may be taxed on their worldwide income.
- Non-residents who are present in Australia for more than 183 days: Non-residents who are present in Australia for more than 183 days in an income year may be taxed on their worldwide income. This is known as the short-term visit exception.
- Non-residents who are subject to a double tax agreement: If Australia has a double tax agreement (DTA) with the country of residence of a non-resident, the DTA may override the general rule that non-residents are only taxed on their Australian-sourced income. The DTA may provide for a different allocation of taxing rights between the two countries, or it may exempt certain types of income from taxation in either country.
It is important to note that these are just some of the exceptions to the rules that Australian residents and non-residents are subject to Australian tax on. There are other exceptions, and the specific rules may vary depending on the individual’s circumstances.
Do Australian Expats Have to Pay Tax?
As we’ve explored in this article, Australian expats have to pay taxes. That’s why a good tax planning is important.
Planning ahead is crucial for Australian expats to ensure they meet all tax obligations and avoid any unforeseen financial implications. This includes understanding the tax laws in both Australia and your host country, reviewing your residency status, managing your Australian-sourced income, and seeking professional advice.
Given the complexity of the Australian tax system, it’s highly recommended that Australian expats seek advice from tax professionals, especially when it comes to significant decisions like selling property or claiming the main residence exemption.
Fortunately, our sister company, Odin Tax, can help you lodge your taxes. We have a team of experienced tax advisors who can help you understand the complex Australian tax system. Contact us today to learn more.
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Frequently asked questions
Whether or not an expat needs to pay tax in Australia depends on their tax residency status. If you are an Australian resident for tax purposes, you are required to declare all income you have earned, both in Australia and overseas, on your Australian tax return. However, if you are a non-resident for tax purposes, you only need to declare Australian-sourced income.
No, Australian non-residents do not pay tax on foreign income. However, they may be required to declare foreign income on their Australian tax return if they are considered to be a “deemed resident” of Australia. A deemed resident is someone who has been an Australian resident in the past and still has significant ties to Australia, such as owning property or having a superannuation fund.
There is no set amount of time that you need to live in Australia to be considered a resident for tax purposes. The Australian Taxation Office (ATO) will consider a number of factors, including your intention to stay in Australia, your physical presence in Australia, and your financial ties to Australia.
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