Australian Tax Rules for Expats
Even if you have relocated from Australia, as an Australian citizen with a tax file number, you are still subject to Australian expat tax regulations by the Australian Tax Office (ATO). You are required to file a tax return even if you don’t have any income in Australia. Your tax responsibilities do not stop just because you have left the country.
Don’t fret, we are here to assist you in understanding the new expat tax rules Australia.
Are expats Australian tax residents?
The ATO determines the residency status for tax purposes on a case-by-case basis for Australian expats living abroad.
To be considered a non-resident for tax purposes, the individual must have little intention of returning to Australia. Conversely, individuals living and working in Australia for six months or more are considered tax residents.
The ATO provides four tests, including the resides test, domicile test, 183-day test, and Commonwealth superannuation, to determine residency status, with only passing one necessary.
To prove a long-term commitment to living abroad, an expat may open foreign financial accounts, earn foreign employment income, or purchase property in a foreign country. The individual must pay taxes on their worldwide income in Australia if deemed a tax resident.
Going to or leaving Australia?
Australia’s tax regulations depend on whether an individual is coming into the country or departing to reside elsewhere.
Individuals leaving Australia will only be taxed on their income sourced in Australia if they can demonstrate their non-residency status for tax purposes through ATO’s tests or by opening foreign bank accounts.
This means they won’t be taxed on their foreign-earned income if they live and work abroad.
As an example, if someone is employed in Hong Kong but owns an investment property in Australia, they will only be taxed on their rental income.
Expat Returning to Australia Tax
Upon returning to Australia for a period exceeding six months, an individual will become a tax resident starting from their arrival date. Regrettably, tax residents must pay taxes on their total global income, including income sourced from foreign countries.
This means they will have to pay Australian taxes on any rental income earned from foreign properties and capital gains tax if they sell such properties.
Income tax for tax residents
The tax rules and rates vary based on an individual’s residency status, with Australian resident tax rates being lower than those for non-residents.
Australian citizens receive a tax-free threshold of $18,200, with a marginal tax rate starting at $18,201 and a rate of 19% for residents earning up to $45,000, among others.
Permanent residents must also pay capital gains tax and the Medicare Levy, with the ATO adding their capital gains to their worldwide and Australian income and taxing the net sum. A 2% Medicare Levy is required for all Australian residents, and that earning above a certain amount must pay a Medicare Levy Surcharge.
However, temporary residents are exempt from the Medicare tax given that they have adequate health insurance and cannot access Medicare services.
Tax resident offsets and exemptions
Tax residents in Australia may be eligible for certain offsets and exemptions, such as:
- Tax-free threshold: The first $18,200 income is not taxed for Australian residents.
- Capital gains tax principal residence exemption: Tax residents are exempt from capital gains tax (CGT) when selling their primary residence in Australia if they have lived there for 12 months or more.
- Low-income tax offset: A tax offset of up to $700 is available for residents with a total income of less than $66,667.
- Low and middle-income offset: Residents earning between $37,001 and $126,000 can receive up to $1,080 in offset.
- Foreign income tax offset: Double income tax may be offset in full or partially if income tax is paid in two countries.
- Medicare Levy surcharge exemption: The surcharge is not required if an individual has sufficient private health insurance.
Types of taxable foreign income
As a foreign resident in Australia, you must pay taxes on your worldwide taxable income.
This includes the following:
- Foreign pensions and annuities
- Earnings from foreign employment, excluding specific professions like those in the defence forces, police, international organizations, and aid projects
- Investment income generated from foreign sources such as interest, dividends, and rental income
- Business or company income from abroad
- Capital gains are made on foreign assets. For instance, if you live in Australia, your overseas property would be considered a taxable asset in Australia.
Will I be taxed twice?
For permanent residents of Australia, paying double tax on the same income is a significant worry. They have to pay taxes in Australia and abroad on their worldwide income.
However, if an individual earns income in multiple countries in a tax year, they will not have to pay double taxes, although it is possible.
Australia has established double tax agreements or treaties with numerous other countries to address this concern.
To avoid being taxed twice on the same income, it is recommended to use the foreign income tax offset, which is available through the tax treaties that Australia has with many other countries.
Note that tax treaties can be complicated, and making mistakes on your tax return is easy. For this reason, it’s recommended to seek the advice of professional expatriate tax services.
The Australian Taxation Office will automatically apply the offsets if you’re eligible for the foreign-earned income exclusion. If you have questions about double taxation on foreign income, consider speaking with a tax specialist.
Australian expat tax treaties
Australia has agreements with over 40 countries to reduce or eliminate double taxation. However, these agreements may only provide partial tax benefits and do not always offset foreign taxes entirely.
The country where the taxable income is sourced is typically given priority, so if you sell Australian capital assets while living in Singapore, you would have to pay Australian capital gains and income taxes, but Singapore would retain the right to tax its residents under its laws.
Most tax treaties include provisions for dual citizens and allow for foreign tax credits and relief against their tax obligations. It is important to declare all income on tax returns, even if eligible for foreign tax offsets.
Which countries have a Double Tax Agreement with Australia?
Which countries do not have a DTA with Australia?
Australia does not have any tax treaties with:
- Saudi Arabia
If you are an expat living in a country with a tax treaty with Australia, it may be necessary to consult with expat tax services to find out if any credits or reductions for foreign taxes are paid.
Our tax specialists can assist you in finding the best tax exemptions and deductions. Contact us for more information about the tax regulations for Australian expats and foreign residents earning income in Australia.
What if I'm not an Australian tax resident?
If you’re not a resident of Australia for tax purposes, you still need to be mindful of the tax consequences on your Australian and foreign earnings.
It’s important to note that being an Australian citizen doesn’t automatically make you a tax resident.
Even if you live abroad and don’t have any Australian income, you still need to file your income tax return or inform the Australian Taxation Office (ATO) with a Return Not Necessary Form.
However, if you live outside of Australia but still receive income from Australia, such as rental income from owning a property, you are required to declare that income on your tax return and pay taxes accordingly.
As a non-resident, you will be subject to higher foreign income tax rates and not eligible for most offsets, exemptions, or the tax-free threshold available to residents.
Return Not Necessary form
Suppose you have ever been an Australian permanent resident. In that case, you will have a tax file number, and the ATO will expect a response from you at the end of the tax year, even if you didn’t earn any taxable income in Australia.
You must fill out a Return Not Necessary form in this case. Failure to inform the ATO of your change in circumstances could result in a fine of $900.
Keep in mind that if you only receive withheld income, such as the Foreign Capital Gains Withheld Tax, you don’t need to file a tax return.
It’s also essential to let the ATO know if you will no longer be earning any Australian income for an extended period and won’t need to file any future tax returns.
Should I pay Medicare Levy?
As a non-resident, you aren’t required to pay the Medicare Levy or any surcharges, since you don’t reside in Australia. Most likely, you will have access to a reciprocal health care agreement in your new country of residency.
2022-2023 income tax rates for non-residents
Non-residents have to pay slightly higher tax rates than residents. The tax rates are as follows:
- If you earn between 0 to AUD 120,000, you will pay a tax rate of 32.5%.
- If you earn between AUD 120,001 to AUD 180,000, you will pay a tax rate of 37%.
- If you earn over AUD 180,001, you will pay a tax rate of 45%.
For instance, a non-resident who earns AUD 100,000 in Australia will pay AUD 32,500 in taxes. On the other hand, a tax resident would pay AUD 22,967 in taxes.
Expat taxes offsets and exemptions
As an expat, you may not be eligible for many tax exemptions and offsets available to residents. For instance, the capital gains tax (CGT) principal residence exemption is not available to expats, even if they are still Australian citizens.
However, one of the most significant tax benefits for expats is the double tax agreements, which help to prevent paying taxes twice on the same income, even if it does not reduce the total tax payment.
How do I pay less tax?
So, what can you do as an Australian expat to lower your tax bill?
Fortunately, you can still claim expenses against your taxable income, so keeping detailed records of your costs is a great way to minimize your tax liability.
For instance, if you own a rental property in Australia, you incur significant expenses to keep the property in good condition.
If you’re an expat who owns a rental property in Australia, there are various costs associated with maintaining the property that you can deduct from your taxable income.
These costs may include the following:
- property management fees
- advertising for tenants
- strata fees
- mortgage interest, and
- other bank charges & home loan fees
By keeping records of these expenses, you can lower your tax bill.
However, it’s worth noting that foreign residents are required to pay a higher tax rate than residents and may also be subject to stamp duty and land tax surcharges.
Contact us for more information on how you can save on your taxes.
Filing your tax return after moving overseas
Filing taxes from abroad is a simple process. You can easily submit your return through your MyGov account online.
You may need to adjust your account settings to allow for overseas payment. It is also important to have an Australian bank account to receive any potential tax refunds from the ATO.
Regardless of whether you are considered a tax resident in Australia, you must convert all of your income into Australian dollars for your tax return.
Final thoughts on Australia expat tax rules in 2023
The taxation obligations for expats primarily depend on their residency status. Many expats are not considered Australian residents for tax purposes, but some may still have connections to Australia.
If an individual is considered a tax resident in multiple countries, they may face double taxation.
However, this can be offset by the tax agreements Australia has in place with other countries.
The tax rules for expats mainly depend on their residency status. Although most expats are not considered tax residents in Australia, some may still have ties to the country.
In such cases, there is a risk of paying double taxes, but this can be offset with the help of tax treaties between countries.
In most cases, it is better to pay higher tax rates as a non-resident than pay tax on worldwide income. If unsure of your residency status, it is recommended to seek guidance from an Australian expat tax services expert.
Lodge your Australian property tax return online, designed specifically for overseas residents.
FAQs about expat tax Australia
As an expat, your tax obligations depend on your residency status. Tax residents must report all their worldwide income to ATO, while non-tax residents only need to pay taxes on their Australian-based earnings.
Regardless of your residency status, you must file a tax return if you have a tax file number.
Non-resident expats face higher tax rates than tax residents in Australia and aren’t eligible for the tax-free threshold.
The ATO also taxes them on their overall income, i.e. both Australian and worldwide, which can be quite expensive unless Australia has a double tax agreement with the taxpayer’s country of residence.
However, non-residents are not required to pay the Medicare Levy or taxes on foreign income.
For non-resident expats, Australian income is taxed at 32.5% for earnings up to $120,000. Revenues between $120,001 and $180,000 are taxed at 37%, and any income above $180,001 is taxed at 45%. Unlike residents, non-resident expats don’t have a tax-free threshold, meaning all their income is subject to taxation.
Non-tax residents in Australia are subject to a tax rate of 32.5% on all their Australian income up to $120,000, whereas Australian residents are eligible for a tax-free threshold of $18,200 and pay a tax rate of 19% on income up to $45,000.
As an individual, it’s possible to be considered a tax resident in multiple countries. When this happens, it’s important to examine each country’s tax year dates and regulations.
Fortunately, Australia has established double taxation agreements with over 40 countries which allow for the reduction of foreign taxes against one’s taxable income in Australia.
Lodge your tax return today
Odin Tax helps you lodge your Australian tax returns from overseasLodge Now