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Leaving Australia to go Overseas – What are the Tax Implications?

 

 

You have a new opportunity – usually

1. your spouse or you has the opportunity to work overseas with an existing role.
2. your spouse or you are taking the opportunity to go overseas to gain new employment.
3. you are leaving Australia living overseas for a period.

 

Executive Summary & Key Points

1. You either remain an Australian resident OR cease Australian Residency and become a Foreign Resident.
2. Becoming a Foreign Resident may save Australian tax on your employment – but may have other implications to your investments
3. You are taxed at a Resident if you have 1 day or more as a Tax resident in the relevant Australian Tax Year (which is always 1 July – 30 June of the next year).

 

Definitions/Preamble

1. A Tax Resident (Easy to become/Harder to Leave) is different to a Resident for Immigration purposes (Harder to become).
2. You are required to be a Tax Resident of One Country but can be a Tax Resident of more than One Country
3. This article assumes that you are leaving Australia to go overseas but that you are currently an Australian Tax Resident.

 

Basics

Your Tax Residency

Logically – The basic assumption if that you remain an Australian resident unless you cease Australian Tax Residency.

The Australian Government makes more money when it earns more tax and it does that when it has more Australian residents to tax, and creates additional taxes on the Australian investments of foreign residents.

 

First Test: Residents Test(Inbound or Outbound)

1. This is the first test, which is applied first, and the one that mostly applies.
2. If you cease this test you will be a Foreign Resident
3. Still Australian Resident = You have no “fixed” address oversees (e.g. you are backpacking or work on a super yacht)
4. Usually still Australian Resident = You stay for a short time (e.g. you are gone less than one year)
5. Usually still Australian Resident = You maintain two homes (e.g. you live 7 months in Bali and 5 months in Australia)
6. Likely Foreign Resident = You work overseas for 2 years or more and aim to stay in the same area or same apartment/house. (weekend trips & holidays are allowed!)

Second Test: Domicile Test(Inbound or Outbound)

1. This test only applies if the Resides Test is unclear.
2. Domicile is considered your permanent home by law – either where you were born or by choice (where you changed home with the intent of making it permanent).
3. This tiebreaker – means that your Domicile is Australia unless your permanent place of abode is elsewhere

Third Test: 183 Day Test (Inbound Only!)

 

Fourth Test: Embassy Worker/Commonwealth Super Fund test

Foreign Residents

Foreign and temporary residents

 

Disclaimers & Out Website

1. Italics are where we have copied information directly from the ATO website.
2. This article has been intended to be written with minimal viewing of the ATO website and terms – so that is easier to read.  While we try to “bridge the gap” between ATO language and real life – please note that either the information on here could be simplistic or not 100% correct.
3. This is a complicated area – please get professional advice. This article is only meant to provide ideas and information to you – it cannot provide “the full picture”.
4. The ATO website is not law – it is their interpretation of the tax law. That said – they do intent to provide information to assist taxpayers with their obligations.