Are you an Australian expat living overseas or considering becoming one? Even while living overseas, you may need to report your income in Australia.
Understanding your tax residency can help you leverage significant tax benefits when moving to your new country. Moreover, shifting to a non-resident status can optimise your tax situation, but you need to make sure that the Australian Taxation Office (ATO) classifies you as one.
While most Aussie expats living overseas tend to be classified as non-residents, the process involves more than just living abroad. Several factors come into play, making the process more complex than it may seem.
In this article, we’ll discuss several ways to lose your Australian tax residency status and become a non-resident for tax purposes. But before we look at how to stop being an Australian tax resident, you must understand the fundamentals of Australian tax residency and ATO’s residency tests.
Before diving into the ways to lose your tax residency or how to stop being an Australian tax resident, it’s crucial to understand what constitutes an Australian tax resident. It determines what income you need to report to the ATO
What Is an Australian Resident for Tax Purposes?
Unlike citizenship, tax residency is about where you live and have your primary ties. You are considered an Australian tax resident if you meet the following criteria set by the ATO:
- You have always lived in Australia or have come to live in Australia permanently.
- You have lived in Australia for six months or more, working and living in the same place for most of that time.
- You temporarily go abroad but don’t establish a permanent home in another country.
- You’re an international student who has studied in Australia for over six months.
What Is an Australian Non-Resident for Tax Purposes?
You’re generally not considered an Australian resident for tax purposes when you cease to live in Australia and establish a permanent home in another country.
If you plan to stay abroad indefinitely, the ATO typically classifies you as a non-resident for tax purposes. However, it’s essential to note that these criteria alone may not be sufficient to establish your tax residency status.
You will be required to take all four of ATO’s residency tests and fail each one to be considered a non-resident for tax purposes.
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What Are ATO Foreign Residency Tests?
Current Australian Tax Residency Rules
The ATO uses a series of tests to determine whether you are a resident or non-resident for tax purposes. These tests are critical for understanding your tax obligations, especially if you’re living abroad or planning to move overseas.
1. Resides Test
The Resides Test is the ATO’s first statutory residency test. It aims to check whether you permanently reside in or outside of Australia. Factors such as the amount of time you spend in Australia, your intentions regarding your stay, and the nature of your lifestyle and routine typically determine your residential situation.
For instance, if your family, work, and social activities are predominantly based in Australia, you’re likely to be deemed a resident under this test.
2. Domicile Test
A key aspect of the Domicile Test is whether you have established a permanent place of abode, or “domicile”, outside Australia. Your domicile is often where you were born (domicile of origin) or a place you have chosen to live permanently (domicile of choice).
This is the least straightforward of the four tests and lacks clarity regarding determining your permanent place of abode. Therefore, it’s a subjective concept influenced by various factors unique to each person.
For instance, an individual born in Australia but residing overseas for their entire life can still have a domicile in Australia if they maintain strong family ties and plan to return to the country permanently. Conversely, an individual born overseas but residing in Australia for many years may not have a domicile if they have cut ties and plan to live elsewhere permanently.
Given the subjective nature of the Domicile test, it can be challenging to apply in practice.
3. The 183-Day Test
The 183-Day Test is a rather straightforward residency test. If you’re physically present in Australia for more than 183 days of an income year – continuously or with breaks – you’re considered an Australian resident for tax purposes.
However, if you exceed the 183-day threshold, you may still argue that you’re a non-resident by providing evidence that your main home is abroad and that your stay in Australia is temporary. This evidence may include proof of your permanent residence overseas, work commitments, and other ties that clearly indicate your life is centred outside Australia.
4. The Commonwealth Superannuation Test
If you are a member of superannuation schemes for government employees, such as the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), you are automatically considered an Australian tax resident. This also means your spouse and any children under 16 are Australian residents for income tax purposes.
The Commonwealth Superannuation Test is less about where you live and more about your employment and superannuation arrangements. It ensures that government employees remain tied to Australia for tax purposes, regardless of where they are posted internationally.
23 Ways to Lose Your Australian Tax Residency Status
Now that you’re aware of the four Australian residency tests, let’s see how to stop being an Australian tax resident by going over 23 ways to lose your Australian tax residency, which you can combine and implement:
- Leaving Australia and becoming a resident of another country for tax purposes.
- Staying outside Australia for over 183 days in a financial year.
- Notifying the ATO that you’re no longer an Australian resident.
- Providing evidence that you have established a permanent home in another country.
- Terminating Australian employment and ceasing to work in Australia.
- Changing your mailing address to your new country of residence.
- Renting out your Australian property and living abroad for an extended period.
- Relocating your business operations overseas.
- Closing memberships and subscriptions in Australia.
- Cutting off your Australian health insurance.
- Closing all Australian utility accounts, such as water, electricity, and gas.
- Transferring all family members to live abroad.
- Taking up permanent residency in another country.
- Minimising your visits to Australia.
- Removing yourself from any electoral role.
- Replacing Australian life insurance policies with ones issued in your new country of residence.
- Demonstrating that you have cut all ties with Australia and intend to remain overseas indefinitely.
- Keep submitting the yearly tax return and maintain the tax non-resident status.
- Integrating into the local social and economic life of your new country by participating in communities, schools, and social events.
- Cancelling Australian driving licence.
- Joining a gym or sports membership in the new country and forming your social life cycle.
- Stop claiming Medicare and get new insurance in your new country of residence.
- Maintaining evidence of your overseas residency.
Benefits of Losing Your Australian Tax Residency
Now that we have discussed some ways to lose your Australian tax residency, let’s learn some key advantages.
- Reduced Tax Obligations: You will only be taxed on your Australian-sourced income, such as rental income from your Australian property. The income you earn overseas will not be subject to Australian taxation. You can get significant tax savings if you earn substantial income from overseas sources.
- No Capital Gains Tax (CGT): As a non-resident, you’re typically only liable for Capital Gains Tax (CGT) on Australian property but not on the disposal of assets outside Australia – particularly beneficial if you plan to sell assets, such as property or sales located overseas.
- No Need to Report Worldwide Income: You’re not required to report your worldwide income to the ATO. This may result in substantial savings, particularly if you live in a country with lower tax rates or no income tax, such as the UAE.
- Potential Tax Treaties Benefits: Australia has double tax agreements with many countries that determine how income is taxed across borders. As a non-resident, you may benefit from such treaties, which can help you avoid double taxation and may reduce your tax rates on certain types of income.
- Flexibility in Global Investments: Being free from Australian tax on foreign investments can allow you to take advantage of opportunities in other countries without worrying about Australian tax implications. You may enjoy greater flexibility in how you manage and grow your investments globally.
By losing your Australian tax residency, you can enjoy more freedom to invest and earn globally without the constraints of Australian tax laws.
Drawbacks of Losing Your Australian Tax Residency
There are a few drawbacks of losing your tax residency status that you may want to consider.
As a non-resident, you don’t benefit from the AU $18,200 tax-free threshold that residents enjoy. This means that from the first dollar of Australian-sourced income, such as rent from an Australian property or dividends from Australian shares, you start from a flat 30% tax rate.
While you can generally keep your superannuation in Australia as a non-resident, there are some complexities. You may face restrictions on your ability to access your superannuation funds if you’re no longer an Australian resident for tax purposes.
If you lose your Australian tax residency and decide to sell your former main residence in Australia, you will lose the 50% CGT discount available to expats. From 1 July 2027, new legislation replaces the 50% CGT discount with cost-base indexation; residents can still use the discount for gains accrued before that date, and foreign residents generally cannot access it. You may want to make the sale before switching to non-resident status to enjoy this main residence exemption.
While these drawbacks are important, they shouldn’t hold you back from pursuing expat adventures and career opportunities abroad. If you’re concerned about navigating the complexities of international taxation, consider seeking professional advice from professionals specialising in expatriate matters.
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Our experienced Australian non-resident tax advisors can help you understand the complex rules and regulations involved in this process and provide practical solutions tailored to your unique situation.
Don’t let uncertainty about your residency status weigh you down. Reach out to our expat tax expert team today to learn about how we can assist you in achieving your tax goals.
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FAQs about the Ways to Lose Your Australian Tax Residency
What is the easiest way to lose Australian tax residency?
Establishing a permanent home overseas and severing personal and financial ties with Australia are some of the most effective steps on how to become a non-resident of Australia for tax purposes.
This involves not only physically relocating but also setting up a long-term residence, transferring your financial and social ties abroad, and ensuring that your lifestyle indicates a long-term move.
How long do I need to stay out of Australia to lose my tax residency?
Staying abroad for more than 183 days a year is crucial, but other factors like your personal and economic ties also play a significant role in how to become a non-resident of Australia for tax purposes.
What is an Australian resident for tax purposes?
An Australian resident for tax purposes is someone who meets the residency criteria set by the Australian Taxation Office (ATO). Residency is determined based on several factors, including:
- Physical Presence: You live in Australia or spend most of the tax year there.
- Domicile Test: Your permanent home is in Australia, even if you’re temporarily overseas.
- 183-Day Test: You are in Australia for 183 days or more in a tax year.
- Superannuation Test: You are a contributing member of certain Australian government superannuation schemes.
Australian tax residents are required to report and pay tax on their worldwide income, while non-residents are only taxed on Australian-sourced income. For further clarification, check the ATO’s residency tests or consult a tax advisor.
Current Australian Tax Residency Rules
Australia’s tax residency rules determine whether an individual is classified as a resident or non-resident for tax purposes. The Australian Taxation Office (ATO) uses several tests to assess tax residency, which affects your tax obligations. Here are the main criteria:
Resides Test: You are an Australian resident if you live in Australia. This includes individuals with a permanent home or those who reside in Australia for a substantial period.
Domicile Test: If your domicile (permanent home) is in Australia, you’re considered a tax resident, even if you’re living overseas temporarily.
183-Day Test: If you spend 183 days or more in Australia during a tax year, you are likely considered a tax resident, unless your usual home is abroad, and you have no intention of residing in Australia.
Superannuation Test: Australian government employees working overseas who contribute to Australian superannuation schemes are considered residents for tax purposes.
Tax residents must declare worldwide income to the ATO, while non-residents are taxed only on Australian-sourced income. For more specific guidance, refer to the ATO’s residency rules or consult a tax professional.
Can I still visit Australia after losing my tax residency?
Yes, you can visit Australia after losing your tax residency, but keeping these visits short and infrequent is important. Spending too much time in Australia or maintaining strong personal and financial ties could lead to the ATO reconsidering your residency status, potentially reclassifying you as a resident for tax purposes.
Do I need to sell my Australian property to lose tax residency?
No, selling your Australian property is not strictly necessary to lose tax residency. Instead, you can rent out the property on a long-term basis and ensuring you do not use it as a personal residence when visiting Australia can also support your claim to non-residency.
How does my superannuation affect my Australian tax residency status?
Your superannuation can complicate your tax residency status, particularly if you continue contributing to it or are linked to an Australian employer. While you can keep your superannuation in Australia as a non-resident, reducing activity in these accounts and exploring options for transferring your super to a foreign pension scheme, if available, can help strengthen your non-residency claim.
Can I maintain an Australian bank account and still lose tax residency?
Maintaining an Australian bank account doesn’t automatically make you a resident. However, to support your non-residency status, you should minimise your activity in Australian bank accounts, close unnecessary accounts, and move your financial transactions to accounts in your new country of residence.
Do I need to inform the ATO when I leave Australia?
Yes, you must inform the Australian Taxation Office (ATO) when you leave Australia and intend to become a non-resident for tax purposes. This notification can be made through your tax return or by directly contacting the ATO. This reduces the risk of being mistakenly classified as a resident for tax purposes in the future.
What happens if I don’t inform the ATO about my move?
If you don’t inform the ATO about your move, they may still consider you an Australian tax resident, which means you could be taxed on your worldwide income, including income earned overseas. This could lead to higher taxes, penalties, and complications with tax treaties, superannuation, and investments.
When am I no longer an Australian resident?
You are no longer considered an Australian resident for tax purposes when you cease to live in Australia and establish a permanent home in another country.
The Australian Taxation Office (ATO) assesses residency based on several factors, including:
- Physical Presence: You leave Australia with no plans to return.
- Ties to Australia: Your personal and economic ties (family, assets, and job) are moved overseas.
- Permanent Home Abroad: You establish a permanent residence in another country.
- Intention: Your intention to stay abroad is long-term.
The ATO may consider you a non-resident for tax purposes from the date you leave Australia if these conditions are met.
For specific guidance, it’s advisable to seek professional tax advice or refer to the ATO’s residency tests.
What are the new rules for tax residency in Australia?
Australia’s tax residency rules are set to change under proposed reforms, making the determination of tax residency simpler.
The new rules introduce a two-step framework:
183-Day Test: If you spend 183 days or more in Australia during a tax year, you are automatically considered a tax resident.
Objective Factors Test: If you spend less than 183 days, residency will be determined based on several factors, including:
- Physical Presence: How much time you spend in Australia.
- Australian Ties: The location of your family, business, and social connections.
- Accommodation: Whether you have a home available in Australia.
- Economic Interests: Employment, investments, and assets in Australia.
These new rules aim to simplify the process of determining tax residency. For specific advice, consult a tax professional or the Australian Taxation Office (ATO).
Can I do my Australian tax return from overseas?
Yes, you can complete your Australian tax return from overseas. The Australian Taxation Office (ATO) allows individuals living abroad to lodge their tax returns online through myTax, using your myGov account. You can also use a registered tax agent for assistance.
Key points to consider:
- Ensure you have access to your Tax File Number (TFN) and relevant financial information.
- Check if you are classified as an Australian resident or non-resident for tax purposes, as this affects your obligations.
- Lodge your return by the standard deadlines, typically October 31.
For detailed information, visit the ATO website or consult a tax professional.
Do I have to pay Australian tax if I live overseas?
Whether you need to pay Australian tax while living overseas depends on your tax residency status.
Australian Tax Resident: If you’re still considered an Australian tax resident, you must report and pay tax on your worldwide income, including foreign income.
Non-Resident: If you’re classified as a non-resident for tax purposes, you only pay tax on your Australian-sourced income, such as rental properties or Australian investments. You won’t need to declare foreign income.
It’s important to regularly review your residency status and consult the Australian Taxation Office (ATO) or a tax professional for specific guidance.
Can I be an Australian resident for tax purposes living overseas?
Yes, you can be an Australian resident for tax purposes living overseas. This depends on whether you meet specific criteria set by the Australian Taxation Office (ATO). Key factors include:
- Domicile Test: If your permanent home remains in Australia, you may still be classified as a resident, even while living abroad.
- Intent to Return: If your overseas stay is temporary, and you intend to return to Australia, you may continue to be treated as a tax resident.
- Ties to Australia: Strong personal, financial, or business ties to Australia can influence your residency status.
As an Australian resident for tax purposes living overseas, you are required to declare and pay tax on your worldwide income, including income earned overseas. If you’re uncertain about your status, seek guidance from the ATO or a tax professional.
