Many Australians dream of moving overseas for a short-term adventure or a permanent lifestyle change. For some, the move is meticulously planned; for others, it’s a spontaneous leap into the unknown.
Regardless of the reason, leaving Australia can lead to many questions about tax, superannuation, property, and even Medicare.
Understanding the tax implications of living abroad can be complicated. With a myriad of rules, tests, and potential consequences, it’s essential to consider the factors that may impact your tax status as well as other financial considerations. Here’s a closer look at what to keep in mind.
Determining Your Tax Residency
When moving overseas, determining your tax residency is often the first hurdle. The Australian Taxation Office (ATO) uses four tests to assess if an individual qualifies as a tax resident of Australia.
It’s not a straightforward choice—your residency status is determined based on specific criteria, often evaluated through the “balancing of facts” surrounding your case. This can lead to grey areas, so consulting a tax professional is highly recommended to clarify your obligations.
Property Ownership and Capital Gains Tax (CGT)
For Australians with property investments, moving overseas can impact the tax benefits associated with these assets. If you sell a property while classified as a non-resident, you could lose the “main residence exemption” on capital gains, which normally exempts you from paying CGT on a home sale. This exemption is crucial for many property owners, so losing it could lead to unexpected tax liabilities.
For investment properties, non-residents are also excluded from the 50% CGT discount, which generally applies to long-term investments in Australia. However, if you were an Australian resident for part of the ownership period, a prorated discount may apply for that time. Additionally, renting out your main residence while abroad might allow you to maintain the CGT exemption, provided the rental period doesn’t exceed six years.
Medicare Levy and Other Tax Implications
When classified as a non-resident for tax purposes, you won’t have to pay the 2% Medicare levy that applies to Australian residents. However, the flip side is losing access to the $18,200 tax-free income threshold, meaning any Australian income you earn—no matter how small—will be taxed at a flat 30%.
Should You Cease Your Australian Tax Residency?
Ceasing Australian tax residency could be advantageous if you plan to stay abroad for more than two years or indefinitely. By doing so, you may avoid paying Australian tax on foreign-sourced income.
However, this decision requires weighing your intentions, the length of time you plan to stay abroad, and the assets you hold in Australia.
Considering Australia’s tax treaties with other countries is crucial, as these agreements can protect against double taxation.
Moving overseas brings personal and professional growth opportunities, but it also requires careful tax planning.
Consulting a tax professional is highly advisable to clarify your residency status and address complex tax implications around super, property, and foreign income. Understanding these considerations can help ensure a smooth financial transition as you embark on your new adventure.
