Australian Tax for Aussies Abroad
How common income items are taxed for Australians abroad
Understanding your Australian taxes as an Australian Resident living in Australia is not ordinarily a simple affair. When we throw a whole new tax system and the integration between the two – we have a recipe for confusion. We are here to assist! We have aggregated a list of major Australian tax matters we see frequently. The tax matters are listed in three main sections:
- Newly Departed Australians
- Australians Currently Living Abroad
- Australians Returning Home to Australia
We must note that you cannot avoid tax or hide assets overseas or in Australia. All information will be shared as part of the ATO’s data sharing with other foreign jurisdictions (over 90 countries so far), under the Common Reporting Standard (CRS). A few years back, the ATO bragged that they have “received records relating to more than 1.6 million off-shore accounts holding over $100 billion” and are “now using data-matching and sophisticated analytics to identify foreign income that has not been reported”. Be wary and transparent with your tax affairs – their systems will only continue to improve.
We stress the importance of being proactive with your financial and tax affairs. There are potentially thousands of dollars that can be saved with strategic tax planning. Do not hesitate to contact us for any matter.
Newly Departed Australians
Tax residency – You will need to consider both your Australian tax residency and your tax residency in the foreign jurisdiction you are involved with.
- Australian tax residency – we recommend you use our Research Residency Tool where you can determine your tax residency. We have written a blog on the importance of tax residency.
Australian Income Tax Rates
Your tax rates are based on the above residency determination. If you are deemed to be an Australian tax resident, you are obligated to file an Australian tax return and report all worldwide income. If you are non-resident, you need to report only income derived in Australia. You can view the individual tax rates published by the ATO.
When ceasing your Australian tax residency, it’s vital to consider your current crop of assets and determine if it’s worth taking part in a deemed capital gain event (CGT event I1). This is realising the gain (or loss) on your current lot of assets without actually selling them. We recommend looking into this because as a non-resident for tax, you are unable to access the 50% CGT discount. You can learn more about CGT Event I1 from this blog.
HECS/HELP debt holders – Notification to the ATO
Australians with HECS/HELP debts are required to submit an overseas travel notification within seven days of leaving Australia if they intend to move overseas for 183 days or more in any 12-month period. This ATO link has more detail on how to lodge them.
If you own a standard (industry or retail) superannuation fund, you can continue to keep it running and can continue to make contributions. That being said it’s important to consider the tax implications in your foreign jurisdiction.
If you own a Self-Managed Super Fund (SMSF) – it’s very important to get personalised information on this because there may be drastic consequences on your balance if you continue to run it as a non-resident for tax purposes.
As per the above scenario for individuals, if a trust ceases being an Australian tax resident, they will trigger a CGT event (I2). All assets that are non-Taxable Australian Property (TAP) have to report a capital gain equal to the deemed gain (or loss) that it has made on any assets. Unlike I1 for individuals, this event is not able to be deferred.
Private Health Insurance (PHI)
It’s all up to your personal circumstances but if you intend to return to Australia eventually, we recommend not to cancel your PHI. Most health funds allow you to suspend your policy for 18-24 months. You may be able to get an extension on that.
Australians Currently Living Abroad
Even though you may be living another foreign jurisdiction, that does not automatically indicate you are a non-resident for tax purposes in Australia. Be sure to get this confirmed based on your personal circumstances.
Declaring Australian Sourced income
If you are considered a non-resident and have Australian sourced income (e.g., Australian rental income), you must lodge an Australian tax return to declare that income (or potential loss). Non-residents get no tax-free threshold and their income is taxed from the first dollar at 32.5% till $120,000 (and more thereafter).
Declaring income if you have a HECS/HELP debt
If your worldwide income is over the threshold ($47,014 AUD 2021-22 tax year), you will have to pay back your HECS debt. Please see this article for more detailed information on differing rates and methods of declaration.
Declaring foreign income as a resident for tax purposes in Australia
If you are still a resident for tax purposes, you must declare and pay tax on your worldwide income. If you are working in another foreign jurisdiction and earning income there, you are obliged to declare that income to the ATO. You may be eligible for a credit in the form of a Foreign Tax Offset, see this blog for more info.
Capital Gains Tax implications to consider
If you own a property that is considered your main residence in Australia, you are ineligible to receive an exemption for capital gain on the sale of that house per the new Main residence exemptions brought out. Seek professional help if you are planning on selling the property as a non-resident.
Investment properties – CGT will always apply to the sale of investment properties. As a non-resident, you are not eligible for the 50% CGT discount.
Non-TAP assets are not subject to CGT in Australia when purchased and disposed of by a non-resident for tax purposes in Australia. Therefore, from a tax perspective, investing in Australia can be favourable. You can invest in Australian listed shares, cryptocurrencies (even on Australian exchanges), Australian ETFs without paying tax on them in Australia.
To access your super while a non-resident of Australia, the rules are the same as if you were living in Australia. This means that a condition of release will have to be met before the funds can be accessed.
When you move overseas and become a non-resident for tax purposes you are no longer paying the Medicare Levy nor the Medicare Levy Surcharge. It is advised not to use your Medicare card if you return to Australia for a holiday and are still a non-resident of tax in Australia.
Australians Returning Home to Australia
Residency and citizenships
If you are departing a foreign jurisdiction on a visa, then you will likely disconnect your tax residency when you leave the country. However, if you still have significant ties to that foreign jurisdiction, you will need to look into this further.
Ensure you continue to monitor if you own any assets or if you continue to earn income from the foreign jurisdiction. It’s recommended to inform the local tax authorities about your departure as it may involve settling tax obligations.
Assets that are non-taxable Australian property when commencing your Australian tax residency will be deemed to have been acquired as at the market value on commencement of residency. For example, if you purchased a Bitcoin as a non-resident at $45k AUD, and returned to Australia while the price was $90k AUD. The cost base for that Bitcoin will be $90k. If you ended up selling that a month later and the price of Bitcoin reduced to $70k – that CGT event in Australia will result in a capital loss of $20k, even though your effective gain is $45k AUD.
You are allowed to transfer money back home, there are no tax consequences of that. We see a lot of people worrying about transfers and taxes. If you earned that income legally as a non-resident in Australia – the ATO cannot tax you on that. Just be sure you can prove that the income was earned as a non-resident.
Transferring money back to Australia can be a completed a number of ways. Wise is an extremely popular company to transfer with – you can connect to them through our affiliate link. We don’t recommend banks as they charge flat fees (approx. $30) and have unfavourable exchange rates.
You may have contributed to a pension plan in the foreign jurisdiction. There are several complexities and tax strategies that can be put into place to ensure you are not over-taxed when bringing that money to Australia.
Use of an overseas company
If you were running your employment or a business in a foreign jurisdiction through a company/LLC and you return to Australia there are some things to consider.
- If the company is not liquidated, any amount you receive from the company will likely be subject to Australian tax per your marginal rate.
- If you keep that company running overseas while you commence your Australian tax residency in Australia, and the company is considered to be controlled in Australia (central management and control in Australia). All profits the company earns may be subject to Australian corporate tax rates.
Foreign Jurisdiction Tax Assistance
Should you also require assistance with the tax in your foreign jurisdiction, we can connect you an expat tax specialist (depending on the foreign jurisdiction). We work with many firms worldwide.
Thank you for reading!
As you can see there are many areas of your Australian financial situation to consider. We have provided the above as general information and it does not take into account your own financial situation and objectives. We hope you found the above useful.
We relish the opportunity to chat in more detail about your situation so to assist you to a deeper level. So please never hesitate to contact us.