Everything You Need to Know
People relocate for various reasons, including employment opportunities, lifestyle changes, or family commitments. While they reside abroad, they often retain financial and personal ties to home, such as property ownership, Bank accounts, and investments. Understanding their tax obligations is crucial, as their residency status determines whether they need to report worldwide income or only Australian-sourced earnings.
Tax Obligation
Depending on the tax residency status of the expats, Australian expat need to report the income and pay tax applicable in Australia. If you’re considered a tax resident of Australia, you must report your worldwide income to the Australian Tax Office (ATO). However, if you qualify as a non-resident for tax purposes, you’re only taxed on Australian-sourced income (such as rental income, Australian investments, or business earnings in Australia).
Your tax status plays a key role in determining your tax obligations, making it essential to establish your residency status. For clearer insights and professional guidance, consider consulting a tax accountant or tax agent in Perth for tax return services.
Determination of Tax Residency
Residency for tax purposes isn’t just about where you live, it’s determined by several tests as provided by the ATO to assess your situation:
Resides Test:
The factors taken into consideration in determining whether a person resides in Australia are:
- Period of physical presence in Australia
- Intention or purpose of presence
- Behavior while in Australia
- Family and business / employment ties
- Maintenance and location of assets
- Social and living arrangements
183-Day Test:
This test only applies to individuals arriving in Australia. You will be a resident under this test if you’re present in Australia for more than half the income year, whether continuously or with breaks. unless it is established that your ‘usual place of abode’ is outside Australia, and you have no intention of taking up residence here
Domicile Test:
You’re an Australian resident if your domicile (the place that is your permanent home) is in Australia, unless it is satisfied that your permanent place of abode is outside Australia. A domicile is a place that is your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).
Superannuation Test:
This test applies to Australian Government employees working at Australian posts overseas and who are members of the CSS or PSS schemes. It does not apply to members of the PSSAP scheme. If this is the case, you (and your spouse and children under 16) are a resident of Australia regardless of any other factors.
If your tax situation is complex—such as working overseas, having dual residency, or being unsure how tax laws apply to you—it is advisable to seek guidance from a tax professional. A qualified tax accountant offers personalized advice and tax return services tailored to your specific circumstances, ensuring compliance with ATO regulations.
Common Tax Issues for Australian Expats
Even after you determine you tax residency there are few more issues for the Australian people working overseas which are discussed below.
Capital Gain on your Assets
If you’re moving overseas and own property or other assets in Australia, it’s important to understand how Capital Gains Tax (CGT) rules may apply to you. The way your assets are taxed can change depending on whether you rent out your home, sell it while living overseas, or become a non-resident for tax purposes.
Study and Support Loan
If you have a study or training loan and you are moving overseas for more than six months, your repayment obligations remain the same as if you were in Australia. You’ll need to update your details, notify authorities of your travel, and report your worldwide income to determine if repayments are required. Your debt remains active and continues to be indexed annually until fully repaid. Voluntary repayments can still be made while overseas, helping to reduce your balance faster.
Medicare Levy and Overseas Residency
If you move overseas permanently, your eligibility for Medicare benefits may be affected. Generally, Australian expats who reside overseas for an extended period are not eligible for Medicare coverage. However, temporary absences from Australia may still allow you to access Medicare under certain conditions, such as reciprocal health agreements with some countries. It is important to notify Medicare of your departure and check your eligibility before relying on services abroad.
Foreign Income Tax Offset
If you’re paying tax on income earned overseas, Australia may offer a foreign income tax offset to prevent double taxation. However, the offset is limited to the amount of Australian tax payable on that income, so calculating it correctly is important.
FAQs
Q. Do Australian Expats need to file a tax return in Australia?
A. It depends on your residency status. If you are a tax resident, you must report worldwide income. If you are a non-resident, you only report Australian-sourced income.
Q. How do I determine my tax residency status?
A. Your tax residency is assessed using the Resides Test, 183-Day Test, Domicile Test, or Superannuation Test, as outlined by the ATO.
Q. Will I be taxed twice on foreign income?
A. Australia provides a foreign income tax offset to prevent double taxation, but the offset is limited to the Australian tax payable on that income.
Q. Do I need to pay HECS/HELP repayments while overseas?
A. Yes, if you have a study or training loan, your repayment obligations continue based on your worldwide income, and you must notify the ATO of your situation.
Q. What happens to my Australian property when I move overseas?
A. Capital Gains Tax (CGT) rules may change depending on whether you rent or sell the property. Non-residents are subject to different CGT rules.
Q. Does the tax rate differ if I am a non-resident?
A. Yes, non-residents are subject to different tax rates. They do not benefit from the tax-free threshold and are taxed at a flat rate on their Australian-sourced income. The rates are generally higher compared to residents, so it is crucial to understand your tax obligations to avoid unexpected liabilities.
Q. What happens if my residency status changes during the financial year?
A. If your residency status changes (e.g., you move overseas or return to Australia), you will need to lodge a part-year tax return. This means you may be taxed as a resident for part of the year and a non-resident for the remainder, depending on when your residency status changed.
Q. Do Australian Citizens but nonresident for tax purpose need to lodge tax return?
A. Yes, if you have Australian-sourced income, you need to lodge the tax return. If you do not have Australian-sourced income, you should inform the ATO by submitting a “Return Not Necessary” form.
Q. What happens to Medicare for Australian expats?
A. If you move overseas permanently and are considered nonresident for tax purpose, you may no longer be eligible for Medicare benefits. Temporary absences from Australia may still allow you to use Medicare under certain conditions, such as reciprocal health agreements with some countries. It is essential to notify Medicare of your departure and check your eligibility before relying on services abroad.
Use our Tax Calculator tool to evaluate your personal tax situation. At TFP Tax Return Services, we specialize in individual tax returns managing everything from simple to complex cases. Our experienced Tax Agent, Tax Accountant, or Tax Advisor is just a call away to assist with your tax matters.
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