Top 9 Tax Implications for Non-residents in Australia

Being a non-resident in Australia comes with its own set of tax obligations. Understanding these tax implications is crucial for anyone planning to live, work, or invest in the country. This article will explore the various tax implications for non-residents in Australia. From income tax to capital gains tax, we’ll cover everything you need to know to stay compliant. So, whether you’re an Australian expat, or a foreign resident living in Australia for a while, read on to find out more.

Tax Residency Rules in Australia

It’s essential to understand your tax residency status first to understand the tax implications. The Australian Taxation Office determines your residency status based on physical presence, domicile, 183-day test, and Commonwealth Super Funds test. It’s different from being an Australian citizen. 

Tax residents pay income tax on all earnings, including foreign income. Non-residents only pay tax on Australian-sourced income. However, non-residency status doesn’t have tax benefits like the tax-free threshold. Non-residents also face higher tax rates.

Top 9 Tax Implications for Non-resident and Expats

Australia’s taxation laws for expats and non-residents can vary in many ways, including capital gains tax and exemption rules. In this article, we’ll delve into the specific implications of these differences.

1. Capital Gains Tax

Capital gains tax is not a separate tax in Australia but is added to the net ordinary income on the tax return. Non-residents are not eligible for the main residence exemption and must pay capital gains tax on any Australian properties.

2. Land Tax

Land tax is based on the value of the land, with a tax-free threshold in most states. Foreign nationals must pay a land tax surcharge, which varies by state.

3. Taxable Income

Non-residents pay taxes on their taxable income derived from Australia’s sources. The taxable income is calculated by subtracting expenses from the assessable income. Non-residents are taxed at a flat rate of 32.5% for taxable income up to $90,000 and a rate of 37% for taxable income over $90,000.

4. Rental Income

Non-residents are taxed on the rental income they receive from properties they own in Australia. If you don’t earn any other income in Australia, rental income is taxed at the same rate as your taxable income. If you earn rental income on top of other incomes, then the total of your income will be calculated to assess how much tax you owe.

What are the Tax Implications for Non-residents in Australia?

5. Stamp Duty

Homebuyers must pay stamp duty tax when purchasing a property, typically 4% to 5% of the property price. Foreign nationals must pay a stamp duty surcharge of 7% to 8%. Exceptions to the foreign buyer’s stamp duty include property purchases in the Northern Territory, the ACT, or Tasmania.

Note that the foreign buyer’s stamp duty does not apply to property purchases in the Northern Territory, the ACT, or Tasmania.

6. Capital Losses

Capital losses are the opposite of capital gains, also known as negative gearing. Expats and non-residents can implement negative gearing strategies to reduce their tax bills. They can also carry forward the capital losses to offset capital gains in the following income year.

What are the Tax Implications for Non-Residents in Australia

7. Tax Deductions

Taxpayers can deduct work-related expenses from their assessable income to reduce their tax payments. For investment properties, expenses such as stamp duty, land tax, property management fees, repairs, insurance, and home loan interest, among others, can be claimed. 

For other small businesses, employment, or investment income, expenses such as travel, tools and equipment, gifts, and working from home expenses can be claimed. However, ATO doesn’t allow claims for expenses for private purposes.

Click here to learn more about tax deductions.

8. Tax Exemptions and Offsets

Non-residents are not eligible for tax offsets and exemptions. Tax residents’ exemptions are the low and middle-income tax offset, private health insurance rebate and offset, and tax-free threshold of $18,200. Non-resident expats who are still tax residents may have to pay double tax in Australia and their new country but can apply for a full or partial tax refund for the foreign income tax offset.

9. Depreciation Deductions and Investment Properties

Depreciation deductions are a way to save money on tax payments for wear and tear on properties. There are two types of depreciation deductions: plant and equipment and capital works. A quantity surveyor can conduct an assessment to determine the amount of deductions, and they can be backdated.

How Does Non-resident Tax Affect My Mortgage?

Non-residents may face challenges applying for an Australian mortgage due to the country’s tax laws. Australian banks calculate the borrowing power based on the Australian tax rate, which can be quite high compared to other countries. For instance, if an expat in Singapore earns an annual salary of $100,000 and has to pay 11.5% tax, an Australian lender would impose a 37% tax rate. This would reduce the expat’s borrowing power to $63,000 instead of $88,500.

Foreign Resident Tax Rates

Income ThresholdsTax RateTax Payable for this Income Bracket
0-$120,00032.5%32.5c for each $1
$120,001 – $180,00037%$39,000 plus 37c for each $1 over $120,000
$180,001 and over45%$61,200 plus 45c for each $1 over $180,000

Learn more about tax implications for non-residents in Australia

The tax implications for non-residents in Australia can be complex and nuanced. Understanding these implications and staying compliant with the country’s tax laws is essential. This article has provided a general overview of the key tax considerations for non-residents. Still, there may be other factors to consider, depending on your specific circumstances.

The Odin Tax Team is here to help if you need more information or assistance. Our team of experts can provide tailored advice and support to ensure that you meet your tax obligations in Australia. So, if you have any questions or concerns, don’t hesitate to reach out to us. Contact us today to learn more about how we can help.

Frequently Asked Questions

Tax implications refer to the effects that a taxpayer’s decisions may have on their tax bill. For instance, expats may encounter unique tax implications because they live outside of their home country. Factors such as deductions, income, exemptions, and offsets can all impact the amount of tax owed.

You can calculate your investment income as follows:

  • Add all your taxable income.
  • Subtract every tax deduction.
  • Pay your income tax based on your bracket.

Non-residents aren’t eligible for the tax-free threshold of $18,200. 

Investment income from mutual funds or property must be reported on a taxpayer’s tax return and is subject to income tax. If the taxpayer sells shares or other assets, the resulting capital gain must also be included in their taxable income.

Selling a house may result in capital gains tax being owed. Australian residents may be eligible for the main resident exemption, but non-residents must pay the full amount of capital gains tax. To minimize this tax liability, expenses related to the property can be deducted from the taxable income.

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