Tax information: Leaving Australia

Before/once you depart

Q. Should I complete any documentation prior to leaving Australia?

A. If you will become a non-resident of Australia for tax purposes, you should advise all relevant financial institutions and share registries. This will ensure that the required withholding tax is deducted. Failure to notify the financial institutions may result in penalty tax being payable.

To evidence your non resident status you should advise the Australian electoral commission and any clubs or professional bodies of which you are a member of your move.

Q. Is it beneficial to open an offshore bank account on departure?

A .If you are non-resident you will not be liable to tax in respect of interest income earned overseas and therefore an offshore bank account structure may be advisable. It should be noted that upon return to Australia in the future, there may be foreign exchange tax implications if you continue to hold an offshore bank account.  You should seek specific advice in this regard.

Find out more about our offshore bank accounts    

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Tax – Basics

Q. Will I be regarded as not resident in Australia during my period overseas?

A. A number of factors will be considered when determining your Australian residence status while overseas, as follows:

• The length of time away from Australia
• Whether your family accompanies you to the host country
• Whether you retain your Australian home
• Whether you rent your home to a third party
• The extent of other economic ties such as bank accounts and other assets held in Australia
• The amount of time you spend in Australia during the assignment

Whether you are a resident of Australia for taxation purposes is a question of fact and circumstances, and must be determined on a year-by-year basis by reference to the particular circumstances.

The tax authorities will initially look at the length of your absence as the primary indicator. If you are absent for a period of less than two years, then, on the face of it, you will be considered as remaining a resident of Australia for taxation purposes during an overseas assignment. Where the assignment is anticipated to be for more than two years, you would normally be considered to become non-resident from the date of departure, subject to you breaking substantial ties with Australia

Foreign nationals who are departing Australia permanently will generally become non-resident from the date of their departure.

It should be noted however that tax residency should always be considered on a case by case basis

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Tax – Administration

Q. Will I still need to complete an Australian tax return after my departure?

A. If you remain resident in Australia you will continue to be subject to Australian tax on worldwide income and capital gains and must report this on an Australian income tax return. You may be able to claim foreign tax credits of exemptions in respect of income earned outside Australia that is subject to income tax outside Australia.

If you become a non-resident of Australia you will need to file a tax return to report Australian source income and capital gains where such income is not subject to non-resident withholding tax.

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Tax – Income from employment

Q. Will I have to pay Australian tax in respect of the employment income I will earn overseas?

A. This will depend on your Australian residence status. If you are a non-resident you will not be liable to Australian tax in respect of earnings from an overseas employment.

If you remain a tax resident, your foreign source employment income will be exempt from Australian tax providing you work overseas for a period exceeding 90 days and the income is either:

• Subject to tax in the country of source; or
• Exempt from tax in the country of source for reasons other than the operation of a double tax treaty or a general feature of the source country's tax law.

While the foreign employment income is exempt from tax, it is taken into account when calculating the tax payable on non-exempt income.

There are also taxation implications surrounding income/gains from employee shares and employee stock options. The implications do change on a case by case basis and should you hold employee shares and/or employee stock options at any time that you cease or commence Australian income tax residency, you should seek specific advice.

Q. I plan to sell my Australian property while overseas. Are there any capital gains tax implications?

A. The gain from the sale of a “main residence” is not subject to tax in Australia, unless you are absent from the home for more than six years and it is rented out.  If the home is not rented, it will remain exempt from capital gains tax indefinitely provided you do not elect to treat another property as your main residence.

Q. Will I remain liable to Australian tax on capital gains tax while outside Australia?

A. If you remain a tax resident in Australia you will be liable for tax on gains from the disposal of all assets, worldwide, unless specifically excluded.  If a gain from the disposal of an asset located abroad has already been subject to a foreign capital gains tax, you may be able to claim a credit against Australian tax for the foreign tax paid.

If you are no longer a tax resident you are liable to tax on gains from the disposal of specific types of assets that are associated with Australia, known as taxable Australian property.  The liability may be further restricted under the terms of a double tax treaty. 

A special deemed disposal and acquisition rule applies when there is a change in your tax residence status. When you cease to be resident in Australia for tax purposes you are generally deemed to have disposed of all assets acquired since 19 September 1985, other than assets which are considered as taxable Australian property (such as Australian real estate), for their market value.  If you become resident in Australia while owning assets acquired after 19 September 1985, other than assets considered as taxable Australian property, you are deemed to have acquired those assets at the time you become resident at their then market value.

It is possible to elect to override the deemed disposal rule on all affected assets and defer any tax charge until the assets are actually disposed of at some later date following departure.  Should you make this election, the assets that would otherwise be deemed to be disposed of on your departure from Australia will be treated as taxable Australian property (TAP). The effect of this election is that no gain is recognised on any assets at the time of departure from Australia but you remain subject to Australian tax on the actual capital gain on the disposal of each asset. The election should be made at the time of lodgement of your tax return for the tax year in which you cease to be an Australian resident.

As a non-resident you remain subject to tax on the capital gains derived from the actual disposal of assets that are taxable Australian property acquired after 19 September 1985, irrespective of whether the election referred to above is made.

Assets that are taxable Australian property include:

• direct or indirect interests in Australian real property
• rights or options to acquire Australian real property
• certain mining rights
• CGT assets used in carrying on a business through an Australian permanent establishment
• Assets that the taxpayer has elected at the time of ceasing residency to be considered taxable Australian property in order to defer any CGT liability until actual sale.

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Tax – Other income

Q. Will I have to pay tax in respect of Australian investment income earned while overseas?

A. Australian source dividend and interest income received by a non-resident of Australia is not subject to Australian income tax, but to withholding tax only.

Franked dividends are exempt from withholding, unfranked dividends are subject to a withholding of up to 30% (subject to the operation of a tax treaty, which may reduce this), and interest is subject to a withholding of 10%.

If you remain tax resident, your Australian sourced investment income will remain subject to Australian tax.

If you choose to rent your principal residence during your assignment, you need to disclose income and expenses in respect to this property in your Australian income tax return.  Furthermore, you may be required to pay land tax on this property during the rental period

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Social security

Q. What Social Security contributions will I pay when abroad?

A. If you are non-resident while abroad, you are not subject to the Medicare levy.

If you remain resident while abroad, you will be subject to the Medicare levy of 1.5% of taxable income while abroad and potentially to the additional Medicare surcharge of 1% if you do not have adequate health cover with an Australian registered fund.

Your employer is required to make a certain level of annual Superannuation contributions for you unless:

• Salary or wages are paid to an employee who is not a resident of Australia for work performed outside Australia; and

• Salary or wages paid by an employer who is not a resident of Australia to an employee who is a resident of Australia for work performed outside Australia.

Therefore, if you are non-resident your employer may stop making Superannuation contributions for you. If you remain resident, your employer will continue making contributions unless certain circumstances exist.

Some employers continue to make Superannuation contributions even though not required.  Ongoing employer contributions may not be tax effective for the purposes of host country taxation if you reside overseas.

Australia has and is entering into totalisation agreements with a number of other countries e.g. US, the Netherlands, Portugal, which generally seek to avoid double Social Security coverage.  The specific rules of each host country must be reviewed in each case as the outcome can depend on a number of factors e.g. Employer, payroll location, etc.

Generally, if you leave Australia and are employed by a local entity in the country you are going to you will be required to pay social security in that country from the start of your employment.

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