23 Ways To Lose Your Australian Tax Residency Status
As an expat, understanding your tax residency status cannot be overstated, as it can have significant financial implications. Although you may be living overseas, you are still obligated to pay taxes to the Australian Taxation Office (ATO).
Understanding your tax residency is very important as it could have expensive repercussions if you don’t. Your tax residency status dictates the tax you must pay to the ATO. You might end up paying double taxation in your new country and Australia.
On the other hand, if you understand it well, you might receive significant tax benefits from moving to your new country. That’s why you need the Australian government to regard you as a non-resident.
Generally, Australian expats are not classed as tax residents. If you do not intend to return to Australia, the ATO will label you as a non-resident for tax purposes. However, it’s more complicated than that to determine whether you are an Australian tax resident or a non-resident.
In this article, we’ll discuss several ways to lose your status as a resident and become a non-resident for tax purposes. But before we get to those details, you must understand the fundamentals of the Australian tax residency and ATO’s residency tests – four tests that ultimately determine whether you are a tax resident or non-resident.
Who are Australian Tax Residents?
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 do not establish a permanent home in another country.
- You are international students who have studied in Australia for over six months.
However, these criteria alone may not be sufficient to establish your tax residency status. For that, you will be required to take all four of ATO’s residency tests.
If you pass any one of them, you will be classified as a resident for tax purposes. To lose your residency status, you must take ATO residency tests and fail each one to be considered a non-resident for tax purposes.
What are ATO Foreign Residency Tests?
The ATO has designed four residency tests to determine whether you are a resident or a non-resident. Here’s a summary of each test:
The Domicile test
As ATO’s first statutory residency test, the domicile test aims to check whether your permanent place of abode is outside Australia.
Determining your permanent place of abode can be a challenging ordeal. This is the most common test that most expats have difficulty failing. We’ll discuss this later in detail and also discuss different ways to solve that, which ultimately helps you in losing your tax residency.
The 183 day test
ATO’s second statutory residency test states that foreign residents who are physically present in Australia for more than 183 days – continuously or with breaks – are considered Australian residents for tax purposes.
The Commonwealth Superannuation test
If you are a member of the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), then you are an Australian resident. That also means your spouse and any children under 16 are Australian residents for income tax purposes.
The Resides test
The Resides test determines whether you live in Australia and are an Australian resident for tax purposes.
Amongst the four tests, the Domicile test is the least straightforward and lacks clarity regarding how the Australian authorities determine your permanent place of abode. This makes it 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.
Benefits of losing your Australian tax residency
Before we can determine how you can lose your Australian residency for tax purposes, let’s discuss its advantages first.
Although there are both benefits and drawbacks to losing your tax residency status depending on your specific situation, here are some potential benefits:
- Reduced Tax Obligations: You will not be liable for paying Australian income tax on your foreign-sourced income if you are no longer a tax resident of Australia. You can get significant tax savings if you earn substantial income from overseas sources.
- No Capital Gains Tax: You will not be liable for Australian capital gains tax (CGT) on the disposal of assets outside Australia – particularly beneficial if you plan to sell assets such as property or shares.
- Simplified Tax Filing: With simpler tax filing requirements, you will save time on your tax affairs, as you won’t be required to report your foreign-sourced income or capital gains in your Australian tax return.
- Avoidance of Worldwide Income Reporting: You are not required to report your worldwide income to the Australian Taxation Office (ATO). This can be beneficial if you have complex financial arrangements overseas or want to maintain your privacy.
Drawbacks of losing your Australian tax residency
There are many drawbacks to losing Australian tax residency status, including:
- Superannuation: You may face restrictions on your ability to access your superannuation funds if you are no longer an Australian resident for tax purposes..
- Capital gains tax: You may be subject to capital gains tax in Australia if you sell assets you own in Australia after losing your tax residency.
- Visa implications: Losing your Australian tax residency might affect your eligibility to stay in Australia, resulting in leaving before the expiry of your visa.
You should always seek professional tax advice before making decisions that may impact your tax residency status.
Our team of experts at Odin Tax can provide you with the guidance and support you need to navigate this complex area of taxation. Contact us today to learn more about our comprehensive tax advisory services.
23 Ways to lose your Australian tax residency status
Now that you are aware of the many advantages of relinquishing your residency status, let’s go over 23 methods that you should implement in combination – rather than individually – to lose your Australian tax residency status:
- Leaving Australia and becoming a resident of another country for tax purposes.
- Staying outside Australia for over 183 days in a financial year.
- Selling or disposing of your Australian assets and investments.
- Closing all Australian bank accounts and shifting financial assets overseas.
- Terminating Australian employment and ceasing to work in Australia.
- Giving up your Australian permanent residency status or citizenship.
- Renting out your Australian property and living abroad for an extended period.
- Relocating your business operations overseas.
- Ending all business or investment activity in Australia.
- Terminating any Australian rental agreements or leases.
- Closing all Australian utility accounts, such as water, electricity, and gas.
- Ceasing all Australian social connections and moving abroad.
- Transferring all family members to live abroad.
- Taking up permanent residency in a country with which Australia has a Double Tax Agreement (DTA).
- Spending more time in a country with which Australia has a DTA than in Australia.
- Notifying the Australian Taxation Office (ATO) that you are no longer an Australian resident.
- Providing evidence that you have established a permanent home in another country.
- Demonstrating that you have cut all ties with Australia and intend to remain overseas indefinitely.
- Spending less than six months in Australia and more time in another country.
- Not filing tax returns in Australia for several years.
- Take your direct family with your spouse and children.
- 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.
Get professional help with Odin Tax
Looking for expert guidance on ways to lose your Australian tax residency status?
Our experienced tax advisors at Odin Tax can help you understand the complex rules and regulations involved in this process and provide practical solutions tailored to your unique situation.
Refrain from letting uncertainty about your residency status weigh you down – contact Odin Tax today to learn more about how we can assist you in achieving your tax goals.
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