If you’re an expat in Australia, you may be wondering about the Australian tax system and how it works for you. When you move to a different country, you must consider local tax rules to ensure legal compliance. Even Australian citizens with tax file numbers who don’t earn an income must file their tax returns with the Australian Taxation Office (ATO).
Here we delve into the latest Australian expat tax rules to help you follow tax obligations.
Who Qualifies as an Australian Tax Resident?
While there is no clear definition of an Australian tax resident, the ATO has outlined the criteria defining individuals as Australian residents who live overseas for tax purposes.
These criteria include the following:
- Having permanently resided in Australia or having always been an Australian resident
- Having worked and lived in the same place in Australia for a minimum of six months
- Not setting up a permanent residence in another country while temporarily going overseas
- Having studied in Australia as an overseas student for more than six months
Generally, Australian expats residing abroad are not considered tax residents. If you’re an Australian expat living overseas and don’t intend to return to Australia, you will become a non-resident for tax purposes.
Meanwhile, the ATO labels people residing and working in Australia for at least six months as tax residents, irrespective of their nationality.
But there are a few exceptions to these rules. The ATO conducts the following four statutory tests to decide your residency status:
- Resides test
- Domicile test
- 183-day test
- Commonwealth Superannuation test
You will be considered an Australian tax resident if you pass any one of these tests.
If you meet the criteria of an Australian resident for tax purposes, you must declare all your earnings in Australia and overseas in your yearly tax returns. This rule applies even if you’ve already filed taxes in another country.
You may also be eligible for specific foreign income tax offsets that’ll help lower the Australian taxes on the income earned overseas.
Foreign Resident for Tax Purposes
If you qualify as a foreign or non-resident in Australia for tax purposes, you must declare all your Australia-sourced income on your yearly Australian tax returns. This includes the following:
- Employment income
- Rental income
- Capital gains on taxable properties in Australia
- Australian pension or annuity income
Taxation for Australian Expats and Non-residents
Expats who are Australian tax residents must pay income tax in the country — regardless of where they earned their income.
Expats who are not Australian tax residents must only pay taxes on income earned in Australia.
Non-residents must pay higher taxes than Australian tax residents. They are not eligible for the tax-free threshold benefit of $18,200 that Australian residents can avail of. Moreover, they also do not have to pay the 2% Medicare Levy, the Medicare Levy surcharge, or taxes on income earned overseas. But they also cannot avail of the country’s Medicare services.
Note that irrespective of your tax obligations in Australia, if you have an Australian tax file number, you must file tax returns with ATO. Once you file your tax return, the ATO will issue tax assessments.
In Australia, the tax assessment due date is October 31. So, pay your due taxes within the deadline to avoid penalties. However, you may also be given an extension on your tax return in specific cases.
Tax Offsets and Exemptions for Australian Expats and Non-residents
Australian expats and foreign residents are not eligible for most tax offsets and exemptions. For example, despite being Australian citizens, they do not qualify for the capital gains tax (CGT) main residence exemption, among others.
The only offsets expats get are that they are exempt from the Medicare Levy and double tax payments. We cover the latter aspect in the section below to help you understand its intricacies better.
Will I Face Double Taxation?
One of the major concerns for Australian tax residents and overseas expats is double taxes. It requires them to pay taxes in Australia and overseas on the same earnings.
Fortunately, Australia has double tax treaties, agreements, or conventions with over 40 countries. These agreements help you qualify for foreign income tax offsets against any taxes you pay in Australia.
Usually, you do not have to pay double tax if you earn income in multiple countries in a single tax year — from July 1 to June 30. The ATO will automatically apply this foreign income tax offset if you qualify for it.
However, even if you qualify for foreign tax offsets, you must still declare all domestic and foreign earnings on your tax returns.
Also, tax agreements do not always fully offset taxes on foreign income. Often, they provide taxpayers with only partial tax benefits.
Nonetheless, these agreements allow international governments to provide foreign tax credits and tax relief, which can help reduce taxes.
If you’re a dual citizen, most tax agreements offer “tie-breaker” tests based on residency rules. These tests determine which jurisdiction dual citizens belong to for tax purposes.
Tax agreements can be complex, so if you’re in doubt, consult an Australian expat tax professional to prevent mistakes on your income tax returns and avoid double taxation.
Countries Having Double Tax Treaties With Australia
Here is a list of a few countries having double taxation agreements with Australia:
- United States
- United Kingdom
- Ireland
- Belgium
- Germany
- France
- Italy
- Denmark
- Finland
- Norway
- Russia
- Japan
- China
- Singapore
- India
- Canada
- Netherlands
- New Zealand
- Vietnam
- The Philippines
- Malaysia
2022-2023 Income Tax Rates for Australian Non-resident Taxpayers
Here are the income tax rates applicable to non-residents in Australia:
| Taxable income band | Income tax rate for non-residents |
| 0 – AUD 120,000 | 32.5% of taxable Australian income |
| AUD 120,001 – AUD 180,000 | 37% of taxable Australian income |
| Over AUD 180,000 | 45% of taxable Australian income |
Are Australian Expats Living Overseas Eligible for Tax Benefits?
If you are an Australian expat with tax residency who moves abroad, you must pay tax on your foreign income in Australia. Because of Australia’s expat tax rules, this tax can be relatively high and thus more expensive.
But you can reduce your tax liability if you prove you have cut financial ties to Australia by earning foreign income, opening foreign bank accounts, or buying property overseas.
Australian Expat Capital Gains Tax System
Australian tax residents and foreign residents must pay CGT on taxable property in Australia. But the CGT system works differently for Australian expats and foreign residents as expats must pay a higher rate than domestic tax residents.
Expats must pay the foreign resident capital gains withholding tax (FRCGW) of 12.5% on certain property sales. So, if they sell a property valued at over $750,000 to an Australian buyer, the buyer must retain 12.5% of the purchase price and pass it over to the ATO.
Conclusion
Moving to a new country can be exciting but also challenging, especially when dealing with new laws. But understanding Australia’s tax system for expats can ease your tax-filing process and help you stay legally compliant. It will also help you avoid making errors while filing taxes and not pay double taxes.
We hope our article on the Australian expat tax system guides you in your learning process and prepares you for a bright future in the country.