Australian Tax Rules for Expats

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Despite moving away from Australia, expats still need to consider Australian tax rules. Even if you earn no Australian income, if you’re an Australian citizen with an Australian tax file number, ATO will expect a tax return from you. Your tax obligations don’t end just because you have left the country.

Don’t worry, though; we’ll help you understand the Australian tax rules for expats.

Are Expats Australian Tax Residents?

Generally speaking, Australian expats living overseas are not tax residents. However, the definition of tax resident is vague – it depends on facts. ATO tends to judge on a case-by-case basis.

If you live overseas with little or no intention of returning to Australia to live, then you will be a non-resident for tax purposes. On the other hand, anyone living and working in Australia for six months or more will be a tax resident regardless of where they were born. Of course, there are some exceptions to the rules, so it’s best to check yourself.

ATO offers four tests to determine your residency status:

  • The resides test
  • The domicile test
  • The 183-day test
  • The Commonwealth superannuation test

You must only pass one of the tests to become a tax resident. If you’re an expat, there are several ways you can prove you’ve cut financial ties with Australia. For example, you could open foreign financial accounts, earn foreign employment income, or purchase property in your foreign country. Essentially, you want to prove your long-term commitment to living overseas.

If you remain a tax resident, you must pay tax in Australia on your worldwide income – which can get pretty expensive.

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Going to or Leaving Australia?

The rules differ depending on whether you’re entering Australia or leaving to live elsewhere.

Let’s start with those leaving Australia. If you can prove you’re not an Australian resident for tax purposes – by taking one of ATO’s tests or opening foreign bank accounts – you will only have to pay tax on your Australian sourced income. This means that if you live and work abroad, you won’t pay tax on your foreign currency income.

For example, if you work in Hong Kong but own an investment property in Australia, you will only pay tax on the rental income.

However, if you’re returning to settle in Australia for more than six months, you’ll become a tax resident from the date you land.

Unfortunately, resident taxpayers must pay tax on their worldwide income, including foreign source income. If you earn rental income from a foreign property, you will have to pay Australian taxes on it. Moreover, you’ll have to pay capital gains tax if you sell.

Income Tax for Tax Residents

Not only do the rules differ on what you pay tax on, but tax rates also vary whether you’re a resident or not.

Australian resident tax rates are lower than non-resident taxpayers’ rates. Firstly, Australian citizens benefit from a tax-free threshold of $18,200. The marginal tax rate starts at $18,201, residents pay 19% until $45,000, and so on.

On top of income tax, permanent residents must pay capital gains tax and the Medicare Levy. The Australian Taxation Office adds your capital gains to your global and Australian source income and taxes you on the net sum. All Australian residents must pay a 2% Medicare Levy. Those earning above a certain amount must pay the Medicare Levy Surcharge.

That said, temporary residents don’t have to pay the Medicare tax. However, they also cannot access Medicare services. As a temporary resident, you must have adequate health insurance.

Tax Resident Offsets and Exemptions

So, if you’re a tax resident, you might qualify for some tax offsets or exemptions.

  • Tax-free threshold: Australian residents don’t have to pay tax on the first $18,200.
  • Capital gains tax main residence exemption: If you’re a tax resident, you don’t have to pay CGT on the sale of your personal property in Australia. To qualify, it must be your main residence, and you must have lived there for 12 months or more.
  • Low-income tax offset: If you’re a tax resident and your total income is less than $66,667, you’ll qualify for an offset of up to $700.
  • Low and middle-income offset: If you’re a tax resident and your total income is between $37,001 and $126,000, you qualify for up to $1,080 offset.
  • Foreign income tax offset: if you pay income tax on your assessable income in two countries, you might receive a full or partial offset on double income taxes.
  • Medicare Levy surcharge exemption: You don’t have to pay the surcharge if you have sufficient private health insurance.
Australian Tax Rules for Expats

Types of Taxable Foreign Income

So, if you’re a foreign expat living in Australia, you’ll need to pay tax on your assessable income from around the world. Types of taxable foreign income include:

  • Foreign pensions and annuities
  • Foreign employment income, except for specific jobs, such as defence forces, police, international organisations, and aid projects
  • Foreign investment income, like interest, dividends, and rental income
  • Foreign companies or business income
  • Capital gains on foreign assets – for example, if you live in Australia, your foreign home is an Australian taxable property

Will I Be Taxed Twice?

One of the biggest concerns for Australian permanent residents is double taxation. If you have to pay tax on all your worldwide income, it follows that you must pay Australian taxes and foreign tax on the same income.

Generally speaking, if you earn income in more than one country within a tax year, you won’t have to pay double tax – although it’s not impossible. Australia has double tax agreements or tax treaties with many other countries. With these tax treaties, you can use the foreign income tax offset against any payable tax in Australia.

Tax treaties are complicated – it’s easy to make mistakes on your income tax return. If in doubt, seek professional advice from expatriate tax services to prevent double taxation. The Australian Taxation Office should automatically apply any offsets if you’re eligible for a foreign earned income exclusion.

Expat Tax Australia Treaties

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Australia has tax treaties with more than 40 other countries. They try to reduce or eliminate double taxation. However, tax treaties don’t always offset foreign tax entirely. They might only offer partial tax benefits.

Typically, tax treaties prioritise the country where taxable income was sourced. For example, you must pay Australian capital gain and income taxes if you sell Australian capital assets while living in Singapore. However, Singapore retains the right to tax its residents under their laws – so if you are a dual citizen, you might still have to pay foreign taxes.

Most tax treaties include a ‘tie-breaker’ for dual citizens.

The treaties also enable countries to offer foreign tax credit and tax relief against their tax.

Even if you’re eligible for foreign tax offsets, you still need to declare all income on tax returns.

Let’s look more closely at Australian tax treaties for expats or foreign nationals moving to Australia. Which specific countries does Australia have a Double Tax Agreement with?

  • Singapore
  • Canada
  • New Zealand
  • Philippines
  • China
  • United Kingdom
  • United States
  • Vietnam
  • And many more countries.

Australia does not have any tax treaties with :

  • Dubai
  • UAE
  • Saudi Arabia
  • Bahrain
  • Qatar
  • Macau
  • Oman

Expats in these countries may need to seek expat tax services to determine if there are any offsets for foreign tax paid.

Australian Tax Rules for Expats

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What if I'm Not an Australian Tax Resident?

If you’re not an Australian tax resident, you still need to consider tax implications on your Australian and foreign income. Remember that even if you’re an Australian citizen, you’re not necessarily a tax resident.

If you live abroad and earn no Australian income, you still need to file your income tax return – or at least let ATO know with a ‘Return Not Necessary Form’. However, if you live overseas and still earn an Australian income, you must declare it on your tax return.

For example, if you own an Australian real property and earn rental income, you must pay Australian taxes. As a non-resident, you’ll pay foreign income tax rates, which are higher than resident tax rates. You won’t qualify for most offsets, exemptions, or the free-tax threshold.

Return Not Necessary Form

You will have a tax file number if you have ever been an Australian permanent resident (or even a temporary resident paying tax). The Australian Taxation Office will expect a response from you at the end of the tax year. However, if you earned no Australian taxable income, tax returns might seem pointless. 

Instead, you must complete a ‘Return Not Necessary’ form. If you fail to let ATO know of your change in circumstances, you may face a $900 fine. You must only complete this form if you don’t earn any Australian income. Although, any withheld income, such as the Foreign Capital Gains Withheld Tax, don’t require a tax return.

You should also let ATO know if you stop earning Australian income for a more extended period and won’t require any future tax returns.

2021-2022 Income Tax Rates for Non-residents

We mentioned that non-residents pay slightly higher tax rates.

  • Anyone earning between 0 – $120,000 Australian income must pay 32.5% tax.
  • Anyone earning between $120,001 – $180,000 Australian income must pay 37% tax.
  • Anyone earning over $180,001 Australian income must pay 45%.

An example: a non-resident earning $100,000 in Australia must pay $32,500. On the other hand, a tax resident would pay $22,967.

Should I Pay Medicare Levy?

Non-residents don’t have to pay the Medicare Levy or surcharge. As you don’t live in Australia, you will probably have a reciprocal health care agreement in your new country of residence.

Expat Taxes Offsets and Exemptions

For the most part, expats don’t qualify for tax offsets and exemptions. For example, although expats are still Australian citizens, they don’t receive the CGT main residence exemption.

The principal expat offset is the double tax agreements – which we’ve already covered. While this doesn’t reduce your tax payments, it does prevent paying tax twice. Unfortunately, expats cannot qualify for many other offsets.

How Do I Pay Less Tax?

So, how do you reduce your tax bill as an Aussie expat? Luckily, expats can still deduct expenses from their taxable income. Therefore, the best way to mitigate your tax expenses is to keep thorough records of your cost base.

For example, if you own a rental property in Australia, you pay out significant expenses to maintain the property. Moreover, you must pay property management fees, advertising for tenant costs, and strata fees (for units). Your total expenses could reach a couple of thousand dollars.

On top of this, you also have an Australian mortgage. On your tax return, you have to declare your total assessable income. Say you earn $550 a week in rental payments. You must report $28,000 net taxable income at the end of the tax year. You should also detail your expenses.

  • Property management fees: $2,800
  • Maintenance and repairs: $3,000
  • Tenant advertising cost: $300
  • Landlord insurance: $2,500
  • Land tax: $1,348

In addition, property investors can deduct their home loans, interest, and other bank charges. You can only deduct the principal cost of the loan against capital gains when you sell the property. However, you can deduct interest payments and other annual home loan fees every tax year.

So, you also deduct $10,000 interest repayments and other bank fees on your tax return. Your total deductions come to $19,948. Therefore, your total taxable income is $8,052. If you were an Australian resident for tax purposes, this would be below the tax-free threshold – you wouldn’t need to pay tax.

However, as a foreign resident, you must pay $2,616.90. 

Note that foreign nationals have to pay stamp duty and land tax surcharges.

Filing Your Tax Return After Moving Overseas

Australian Tax Rules for Expats

Fortunately, tax filing from overseas is straightforward. You can lodge your return online using your MyGov account. You may need to update your settings to allow you to pay taxes from abroad. Also, ensure you have an Australian bank account to collect any tax refunds from ATO.

Whether you’re an Australian tax resident or not, you must convert all your income into Australian dollars on your tax return.

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Final Thoughts

The rules for expats depend mainly on your residency status. While most expats are not Australian residents for tax purposes, some might not manage to break all their ties with Australia. If you are a tax resident in more than one country, you may have to pay double taxes. Hopefully, you can offset your payments with Australia’s taxation treaties.

Australian expats who are not tax residents will have to pay higher tax rates and don’t benefit from most exemptions, offsets, or the tax-free threshold. Yet, it’s better to pay higher tax rates than pay tax on your worldwide income in most circumstances. If you’re unsure about your residency status, speak to an expert.

Frequently Asked Questions

Do Expats Have to Pay Tax in Australia?

Expats who are tax residents must pay tax in Australia on all their income, no matter where they earned it. Expats who are not tax residents only have to pay taxes on their Australian sourced income. Regardless of whether you have to pay tax in Australia or not, you need to lodge a return with ATO if you have a tax file number.

How Are Non-residents Taxed in Australia?

Non-residents have to pay higher tax rates than Australian residents and don’t benefit from the tax-free threshold. However, non-residents don’t have to pay the Medicare Levy or pay tax on foreign income. Tax residents live and work in Australia for more than half the tax year.

What Is the Expat Tax Rate in Australia?

Expats must pay 32.5% on all Australian income up to $120,000 if they’re non-residents. Any income between $120,001 and $180,000 is taxed at 37%. Income above $180,001 is taxed at 45%. Expats and non-residents don’t have a tax-free threshold.

Can Non-Australian Residents Claim Tax-Free Threshold?

No – non-tax residents in Australia must pay 32.5% on all Australian income up to $120,000. On the other hand, Australian residents can enjoy a tax-free threshold of up to $18,200. Moreover, residents only pay 19% on income up to $45,000.

Can You Be a Tax Resident in Two Countries?

You can be a tax resident in more than one country. You should check the other country’s tax year dates and rules if this is the case. Australia has a Double Tax Agreement with more than 40 countries to offset foreign taxation against your Australian taxable income.

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