One benefit of becoming an Aussie expat is that moving to your new country could have significant tax benefits. But before you can reap the benefits of a lower taxing country, you’ll need to convince the Australian government that you are no longer regarded as a resident.
But it’s not as simple as just getting on that plane, setting up camp outside of Australia and telling the government that you’re now a non-resident.
Australia has four residency tests all of which you need to fail tonne considered a non-resident for Australian tax purposes! Pass one test and you’ll remain an Australian tax resident.
The four residency tests are as follows:
– the ‘resides’ test,
– the domicile test,
– the 183 day test, and,
– the Commonwealth superannuation test.
If these tests, the one test that most expats commonly face difficulties with, is the domicile test which in short states that if your domicile Is Australia, then you are tax resident in Australia, UNLESS you have a permanent place of abode outside Australia.
Without going into too much detail, typically if you were born in Australia and /or hold an Australian passport, your domicile will be Australia and thus you will be tax resident in Australia, unless you have a permanent place of abode outside Australia. Unfortunately the term’permanent place of abode’ isn’t defined in Australian tax legislation and so, we need to turn to case law and tax office rulings to understand what this means.
The relevant tax ruling that discusses the ATO’s interpretation of the term ‘permanent place of abode outside Australia’ is IT 2650 Income Tax Residency: Permanent Place of Abode Outside Australia.
Take a read and you’ll quickly discover that determining whether a person has a permanent place of abode out of Australia or not is unnecessarily subjective and grey! The ruling states that to determine residency under the domicile test a taxpayer must weigh up the facts and circumstances of that person’s life. Read further and you’ll discover that there’s no one factor alone that determines tax residency, but instead all factors must be considered and weighed against each other, ultimately swaying the balance to residency or to non-residency!
Crikey! Talk about confusing right? So what can you do to sway the balance of your circumstances towards becoming a non-resident?
Firstly, if you don’t set up a permanent home in your new country, you’ll still be regarded as an Australian resident for tax purposes. This will mean that any income you earn both in Australia and internationally will need to be shown on an Australian tax return.
So to be treated as a foreign resident for tax purposes, you need to fully satisfy Australian authorities that you really have left the country permanently.
So how can you demonstrate that to the Australian Taxation Office?
Here are 15 potential factors that alone won’t cause you to be non-resident but that when taken together, may assist in stating the case that you really are off for good and have become a non-resident!
1. Buy a one-way ticket to your new country and try to avoid returning to Australia too often.
2. Buy a home or sign a long-term lease.
3. Sell your Australian home or lease it out long-term.
4. Properly resign from your Australian job.
5. Buy a car in your new country.
6. If your financial and investment affairs are simple, simply close your Australian bank accounts and cancel your Aussie credit cards.
7. Open bank accounts in your new country and apply for local credit cards.
8. Sell the furniture from your Aussie home, or ship it all to your new country.
9. Pull out of your Australian sporting and social clubs, and sign up with equivalent clubs and hobby groups in your new country.
10. Take the whole family – wife, partner or children – with you.
11. Enrol your children in school in your new country.
12. Apply for a drivers license in your new country.
13. Advise Australian government agencies, such as Centrelink and Medicare, that you have left the country permanently.
14. Advise the Australian electoral commission that you want your name taken off the electoral role because you are leaving Australia.
15. Stop making Medicare claims, cancel your private Australian health insurance policies, and sign up for local services in your adopted country.
Finally, if you need any more help with establishing your absence permanently, contact Expat Tax Services today for the advice you need.
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Comments 14
I am looking to move permanently to Spain and just waiting on work and residency visa . I have British and Australian citizenship but lived in Oz for 22 years . My super will need to remain here as I’m only 55 so I’ve been told I need to also keep a bank account altho no funds income will go into that once I move . Will this allow me to become non resident for tax purposes ? I’m not planning on coming back but will eventually need my super taken out ?
Hi Angela,
Residency is a complex area and every case has to considered based on the person’s circumstances.
If you would like to discuss Australia’s residency rules and how they would apply to you I’d recommend contacting our team.
Regards,
Terryn
Hi Shane,
What should I do if I was lodging my tax for ATO and I faulty choose that I am a resident for tax purposes though I am not because I have not stayed in Australia after my PR? Can I amend this error for the previous 3 years?
I wanted to lodg my tax for this year and I choose not resident based on my circumstances and still asked me to declare my forign income though I do not satisfy the democil test and all the others? What should I do in this case?
Author
Hi Tina,
Thanks for your email. Firstly, sorry to hear that you made an error with your returns. This does happen from time to time so the ATO does allow you to amend your return. Typically for most taxpayers, you will have 2 years to lodge an amended return and correct your errors (from the date that the ATO issued your Notice of Assessment to you).
Outside of that time period your only real choice is to lodge an objection against your notice of assessment. However, objections too, only have a 2 year timeframe for lodgement. Even when you are out of time for an objection, in some cases it may be possible to request that the Tax Commissioner treat your objection as having been lodged on time, and if successful the ATO will accept your objection and process that accordingly for you.
Regarding your current year return, if you are indeed a non-resident, and if you’ve notified your non-residency status on this return, then although the system asks you about your foreign income, you generally will only need to include your foreign income in that return from 1st July 2021 through to the date that you nominated as your non-residency start date.
For example, if you stated on your 2022 return that you became a non-resident on 15/07/2021, then you will generally only need to declare your foreign sourced income (non-Australian income) in your return from 1st July 2021 to 15th July 2021, and you should exclude your foreign sourced income earned from 16th July 2021 onwards.
Hopefully this makes sense – if not, – please reach out to our team via our contact us page.
Thanks
Shane
H Shane,
Thanks for the info, this doesn’t seem to be as straight forward as I hoped. I thought the DTA between Australia and Malaysia would take precedence over local laws. As we are not looking to make a move until next year are we better to wait and see the if the new proposed laws that the tax board put forward to the ATO will be implemented? Seems that the legislation has been drafted and will probably come into effect. The 45 day rule that’s been proposed is pretty tough which is why I was hoping the DTA would negate the new proposed rules.
Thanks
Richard
Hi Richard,
Unfortunately Australia’s tax residency and the application of the tax treaties is not a straight forward process.
In regards to the proposed changes to the residency legislation that was based on the board of taxation’s recommendations there has been no draft legislation written and there was a change of government in May 2022 and the new government has made no announcements regarding their intentions regarding tax residency. There is no certainty that the changes will proceed.
Before you move to Malaysia I’d recommend getting in contact with our team to discuss your move.
Regards
Terryn
Hi Shane,
Great info you have posted here. My partner and I want to move to Malaysia on the MM2 visa and want to make sure we / me am no longer a tax resident of Australia. We easily follow your steps as we have every intention of having a permanent abode in Kuala Lumpur and sourcing income from Dubai. Our issue is my partner has 2 x dependants that are 13 & 16. She shares custody and wants to visit them in Australia which would equate to abut 20 x weeks a year. I’m happy to come back for 10 x weeks to join her and remain in KL (or travel some exotic destination). We would like to keep a rental property in Australia too so we have a place to stay when we are here. Where would a situation like this leave us? Could I be a non-resident and my partner be a resident or could both of us be non-residents? I’m also eligible for a NZ passport if that has any weight.
thanks
Rich
Author
Hi Rich,
Firstly thanks for your message. Regarding your plans, just based on the few details that you’ve written, you would more than likely remain as Australian tax residents. The reason for this is because you would be considered to be residing in Australia according to the ordinary meaning of that expression. That by the way, is Australia’s first residency test (note that we have 4 residency tests, and you need only pass one to be a tax resident of Australia).
You should also note, that based on the scenario that you’ve described, not only is it very likely that you would you be considered a tax resident of Australia, you’d actually be considered a tax resident of Australia for the whole Australian tax year (notwithstanding that you may only be physically present in Australia for 10 – 20 weeks between the two of you). There is established case-law that supports this principle.
As a consequence, I would strongly urge for you and your partner to consider booking an ‘Outbound Expat’ tax consultation with us via our <a href=”https://www.expattaxes.com.au/appointments/>book an appointment page as we’ll take you through all this, and whether or not remaining a tax resident of Australia is a problem (surprisingly, although it can be, it’s not always totally problematic in every case), we’ll strategise with you based around your own individual circumstances, and we’ll guide you through the whole process.
That appointment will also be risk-free as we offer all clients a 100% money back guarantee (take a look at our Book an Appointment page to learn more).
Beyond what I’ve written above, I highly urge you to take advice from an expatriate tax firm before you make any decisions or plans. Note that it doesn’t even have to be us that you book with (although I think we do it better than most other firms, if not best)! What’s important is not so much who you book with, but that you book such an appointment to take advice because the decision to move, and the decisions that you need to take to become a non-resident are much more complex than this and other articles describe! If you do happen to choose another firm, that’s no problem at all however I’d urge you to take care and find out just how many expatriate clients they have (in numbers, not percentage wise), where they have clients, and how long have they been specialising in expatriate tax for Australians!
In any case, although that may not have been what you wanted to hear, I hope that it was at least helpful.
Thanks
Shane
at that rented address in Australia for the entire Australian financial
Hi Shane,
I’m Australian citizen and currently consdiering an offer to relocate overseas, we dont have kids yet, and the new employer is suggesgting my wife joining me only after I complete 6 months probhation period. If my wife stays in Australia while I move overseas will that result in me being still considered resident for tax purposes even if I take the above mentioned measures (closing all bank accounts, one way ticket, etc)
Regards
Alan
Hi Alan,
Residency is a complex area so we would need to find out more about your personal circumstances and the job offer that you have received.
I’d recommend booking a free enquiry call with Shane or one of our team on our website to discuss a bit more about your circumstances and our services.
Thanks
Terryn
Hi my question is- if a permanent residence no loner resides or worked in Australia- am i entitled to any refund on the tax – I have paid while working there.
I was a permanent residence and worked in Sydney from 1989 till 1995 as a medical doctor in Sydney. Since then- I have relocated back to my home county Myanmar.
Hi Dr Than,
I assume you would have lodged your Australian tax returns for the years while you were working there, up to 1995, the ATO would have issued you a notice of assessment for those years with a final tax payable/refund for each year. After you left Australia you would only be entitled to a refund if you have overpaid tax in Australia in any subsequent years. Without knowing more about your circumstances it would be unlikely that you are entitled to any Australian tax refunds after you left.
Regards,
Terryn
Hello Sir How are you ? Can I ask a question regarding residency status for tax purpose ?
Author
Hi Abdullah,
Thanks for visiting our website. We’re happy to take questions however bear in mind that we’re unable to determine a person’s residency status without considering and understanding their intentions and ALL of the facts and circumstances of their life, largely because the rules are subjective, grey and ridiculously complex.
Having said that, how can we help you – what’s do you wish to ask us?
Thanks
Shane