Tax for Aussie Expats and Non Residents

March 3, 2020



All us aussie’s love to travel and head off on our overseas working holidays, to not return for many years. Unfortunately living abroad now may have more tax consequences than once before.  It is important to firstly determine if you are and Australian resident for tax purposes or a non resident.

Are you an Australian resident or foreign resident for tax purposes?

This can be quite confusing.  A person can be an Australian resident for tax purposes but not have Australian citizenship or have permanent residency.  On the other hand a person can have a visa to enter Australia but not be a resident for tax purposes.  There are a number of residency tests that help you determine your status:

Resides Test – This is the primary test.  If you reside in Australia, you will be considered an Australian resident for tax purposes and you won’t need to apply any of the other tests.  The factors that are used to help determine whether you pass this test are: physical presence, family, intention and purpose, business or employment ties, social and living arrangements and maintenance and location of assets.

If you don’t pass the resides test than there are another three tests, with one of them needing to be satisfied to be an Australian resident for tax.

The three tests are:

Domicile test – The meaning of domicile by law is a place that is considered to be your permanent home.  It can either be a domicile by origin which is where you were born or by choice, where you have changed your home with the intent of making it permanent.

183-day test – this test applies to people coming into Australia.  Under this test you will be a resident if you are actually present in Australia for more than half the income year.  This can be either continuously or with breaks.

Commonwealth Superannuation test – this test applies to Australian Government employees working at Australian posts overseas.  They are also need to be members of the CSS or PSS schemes.

Changes to Capital Gains Tax for expats:

The most recent change is to Capital Gains Tax.  New laws have eliminated CGT exemptions for expats living abroad.  Previously expats living overseas could sell their home back in Australia without having to pay capital gains tax as long as the property was not rented out for more than 6 years.  The property was treated as their primary residence for up to 6 years.  The change in law now eliminates the 6 year rule and expats are unable to treat their home as this primary residence.  Any expat now living abroad will automatically have their Australian home treated as a second property, with CGT due from the date the property was purchased.  Expat’s won’t even be able to pro-rata the capital gain even if when they purchased the property when they were Australian residents.

Since the 5 December 2019 new law has been passed and is set to be introduced immediately however a provision has been made for property owners who owned a property prior to 9 May 2017.  These property owners can still benefit from old law providing they sell their property before the 30 June 2020.  Another exception to the change in law is for certain ‘life events’.  Life events include a terminal medical condition, death or a CGT event that involved the distribution of assets between spouses as a result of divorce, separation or similar maintenance agreements.

For expats currently living abroad they really may have to consider selling their primary residence before the 30 June 2020 deadline to significantly reduce their tax burden.  Another option would be for them just to move back to Australia.

Are you an Australian resident or foreign resident for tax purposes?

Other Capital Gains Issues

When an Australian intends to head off on their overseas adventure and live abroad other assets which they hold (excluding real estate) for example shares are considered sold on the date the Australian resident departs and becomes a non resident.  Expats usually will not be aware that they are liable for capital gains tax in this situation.  Luckily a waiver can be applied to this capital gains, deferring it to a future date or actual sale date.  At this time it may be best to chat to an accountant as each option will have different tax outcomes.

Non-resident withholding tax

Before becoming a non- resident it is important for the tax payer to notify their bank of their change in residency so that the correct amount of non resident withholding tax is withheld.  Withholding tax is payable when receiving unfranked dividends, interest and managed funds distributions.

HELP or TSL Debts for Non- Residents

Previously if you left Australia and didn’t return or were away for a number of years, while you were a non resident you were not liable to make payments on your Help or TSL debts.  This has all changed. Now if you plan to live or work overseas for longer than 183 days then you must submit a overseas travel notification within 7 days of leaving Australia.  You then must lodge your worldwide income or a non-lodgment advice.  The reporting of your worldwide income can be done through myGov or a registered tax agent.  Once you have reported your income the ATO will notify you of how much you owe towards your HELP or TSL debt and the due date for payment.