Tax Obligations for Australian Citizens Who Have Moved Overseas
Written by Julie Jung & Dylan Sinclair
Relocating overseas can be an exciting chapter in life, but for Australian citizens and residents, it comes with a range of tax obligations that need careful consideration. The Australian Taxation Office (ATO) has specific rules for Australians who have moved abroad, ensuring that income earned both in Australia and overseas is appropriately taxed. Understanding your obligations can help you avoid any surprises and ensure compliance with Australian tax law.
1. Determining Your Residency Status
The first step in understanding your tax obligations as an Australian resident living abroad is determining your residency status for tax purposes. The ATO uses several tests to assess whether you are considered an Australian resident for tax purposes, including:
The Domicile Test: If your permanent home is in Australia, you may be considered a resident for tax purposes, even if you live abroad.
The 183-Day Test: If you spend more than half of the financial year in Australia, you might still be regarded as a resident for tax purposes.
The Superannuation Test: If you are a member of certain superannuation schemes for Commonwealth government employees, you are typically considered an Australian resident.
Your tax residency status is crucial because it determines how your income will be taxed.
2. Australian Income
Even if you move overseas, income earned from Australian sources remains taxable in Australia. These include rental income from a property in Australia, wages from an Australian employer or capital gains on Australian assets. As an Australian resident for tax purposes, you are required to declare this income on your Australian tax return.
If you are considered a non-resident for tax purposes, you will still need to pay tax on income earned in Australia. However, non-residents are subject to different tax rates and are not entitled to the tax-free threshold.
3. Foreign Income
If you are an Australian resident for tax purposes, you must declare all income earned worldwide on your Australian tax return, including income earned overseas. This includes wages, interest, dividends, and capital gains. However, to avoid double taxation, Australia has tax treaties with many countries that allow you to claim a foreign income tax offset for tax already paid in the country where the income was earned.
Non-residents do not need to declare foreign income on their Australian tax return.
4. Capital Gains Tax (CGT)
Capital gains tax is another important consideration for Australian residents living overseas. If you are an Australian resident for tax purposes, you are subject to CGT on any assets you own worldwide. However, if you become a non-resident, only your Australian assets are subject to CGT. Importantly, if you sell your Australian assets, the 50% CGT discount is generally not available. Furthermore, you may not be entitled to the main residence exemption if you sell Australian property while you are a foreign resident for tax purpose unless the life events test is satisfied.
5. Superannuation
Australian citizens who move overseas can generally keep their superannuation in Australia. However, different rules apply to contributions, withdrawals, and taxation depending on whether you are a resident or non-resident for tax purposes. It’s essential to understand these rules, especially if you are considering withdrawing your super while living abroad.
6. Tax Filing Obligations
Even if you move overseas, you may still need to lodge an Australian tax return. If you are a resident for tax purposes, you must file a tax return each year declaring your worldwide income. Non-residents also need to file a tax return if they have Australian-sourced income. You should also keep in mind your obligations in the country where you reside, as you may need to file tax returns and pay taxes there as well.
7. Study or Training Support Loan (HELP, HECS, VSL, AASL TSL) Repayment Obligations
From 1st July 2017, even if you are living overseas, if you have a study loan (HELP, HECS, VSL, AASL, or TSL) and your worldwide income exceeds the minimum repayment threshold set by the Australian Government, you are required to report your worldwide income to the Australian Tax Office. A compulsory repayment will then be assessed.
8. Seeking Professional Advice
Taxation for Australian citizens living overseas can be complex, especially with the potential for double taxation and varying rules depending on your residency status. Do not hesitate to contact our team of accountants to ensure you comply with all relevant laws and optimise your tax situation.
Moving overseas does not mean leaving your tax obligations behind. Understanding your residency status, declaring all relevant income, and being aware of CGT and superannuation rules are critical steps in managing your tax obligations as an Australian citizen abroad. Do not hesitate to contact our team of accountants so you can navigate the complexities of international taxation and avoid any potential pitfalls.