Planning an extended overseas working holiday or relocating for work? Heading to Europe, the United States, Asia or anywhere else for that matter? It’s hugely exciting, but when it comes to Australian expat tax obligations, there can be lots of administration and paperwork that comes with the move.
We’re here to make the transition easier for you to manage.
Australian residency and tax
All Australian residents are required to lodge tax returns each year showing all income earned in the previous financial year. What many people don’t realise is that income earned anywhere in the world – not just in Australia – is taxable income. And, you don’t have to be living in Australia to be considered a resident for tax purposes.
Am I an Australian resident (for tax purposes)?
If you live somewhere, you are a resident, right? Unfortunately, when it comes to Australian expat tax and residency, it’s not that simple.
The tax residency tests
The Australian Taxation Office (ATO) has several tests to determine whether a person is an Australian tax resident.
1. The Resides Test
The first test applied is always the ‘Resides Test’. If you’re an Australian citizen and you reside (live) in Australia, you will be considered an Australian resident for tax purposes. You don’t need to take any secondary tests in this instance.
However, for Australian expats heading overseas, or those who have already moved, they will need to take a different test.
2. The Domicile Test
The ‘Domicile Test’ covers your primary home. If your permanent home is in Australia, then the ATO will usually treat you as a resident for tax purposes. For example, consider a university student deferring a semester of study and spending four months in Europe. Their home is still in Australia, and they always intend to return. In this case, the ‘Domicile Test’ considers them an Australian tax resident, even though they’ve lived overseas temporarily.
3. The 183-day Test
For the ‘183-day Test’, if a person is in Australia for 183 days or more, they usually will be considered resident for tax purposes. Importantly, those 183 days do not need to be over a continuous period, just the total across an income year. An income year, also known as the financial year, runs from 1 July to 30 June the following year.
4. The Superannuation Test
The ‘Superannuation Test’ only applies if you are an Australian Government employee working overseas, and are also a member of one of two Government superannuation schemes: CSS or PSS.
Practical examples and case studies for Australian expat tax
As discussed above, a person leaving temporarily, even for an extended holiday, remains an Australian resident for tax purposes. But if the student from that example above extends their stay beyond the four months to over six months, then they will fail the ‘183-day Test’. However, if they still intend to return to Australia or their domicile remains here, then they will likely still be an Australian resident.
Many Australians leave Australia with a one-way ticket, intending to find employment overseas and live there with no return date. If the person has sold their home or has no active rental lease, they will almost certainly fail the domicile test. As a result, the person will likely not be an Australian resident for tax purposes.
Similarly, if you depart Australia with the intention of leaving permanently, you will no longer be an Australian resident for tax purposes, and will become a tax resident of your new country. That means you won’t need to lodge an Australian tax return for the tax year after you become a “foreign resident”, except in some special cases…
What about my HELP/HECS debt?
Here’s where Australian expat tax gets tricky. Regardless of whether you are a “resident” or “non-resident”, if you have a HELP or HECS debt, then you’ll need to declare your worldwide income at tax time every year so the ATO can calculate whether you need to make a compulsory repayment.
This extra layer of administration is in place to ensure those living and working overseas continue to make repayments on their student debt even though they are not currently in Australia.
If you plan to live and work overseas, or have already moved, and need some help with your tax obligations, just get in touch with us via [email protected] or send us a question via our Facebook page.