What are the tax implications of working overseas as an Australian expat?

Working overseas may offer exciting lifestyle and career opportunities, but it also brings a complex range of tax considerations.

Understanding tax obligations for an Australian working overseas is critical to protecting your wealth and avoiding unexpected liabilities, both at home and abroad.

In this article, we explore Australian tax residency, how different types of income and assets are treated and what strategies you can consider to ensure you’re meeting your obligations and making smart decisions for your future.

Are you still an Australian tax resident?

Tax for an Australian working overseas can be complex. To understand your tax implications, you first need to determine whether you remain – or will remain – a resident for Australian taxation purposes.

This isn’t completely straightforward and is dependent on a range of factors. There are a range of tests the Australian Taxation Office (ATO) uses to determine this. If you meet any of the criteria for the following statutory tests, you will be classed as a tax resident.

The resides test

This considers whether you live in Australia as part of your ordinary pattern of life. It takes into account your physical presence, work and business connections, where your assets are held and your personal and social arrangements.

The domicile test

This looks at where your permanent home is considered to be. Even if you’re living overseas, you may still be a resident for tax purposes if Australia is seen as your true home.

The 183-day text

If you spend more than 183 days in Australia during a financial year, you may be deemed a resident, unless it’s clear your usual place of residence is elsewhere and you don’t intend to stay.

The Commonwealth superannuation test

This applies to certain Australian Government employees. If you’re contributing to a Commonwealth or Public Sector Superannuation Scheme (CSS or PSSS), you may continue to be treated as an Australian resident, no matter where you live.

What does remaining a resident mean for your taxes?

If you are classified as a resident for tax purposes, you must declare and pay tax on your global income and assets in your Australian tax return. Even income that has already been taxed in another country may still be taxable in Australia.

Fortunately, Australia has double tax agreements with many other countries, which can help reduce or eliminate double taxation. You may also be eligible for a foreign income tax offset, which credits the tax you’ve already paid overseas against your Australian tax liability.

What if you become a non-resident?

As a non-resident, your tax obligations shift. You are only taxed on income that has an Australian source, such as rental income, Australian dividends or capital gains on Australian property.

However, the trade-off is that you are no longer eligible for the tax-free threshold and your Australian income is subject to non-resident tax rates, starting at 30%. You also lose access to the 50% capital gains tax (CGT) discount on assets held during your period of non-residency.

This can lead to a significantly higher tax bill, especially if you sell assets like property or shares while living overseas.

How are specific asset classes treated?

The way assets are treated varies significantly depending on if you are an Australian tax resident or not. It’s important to understand these differences when making investment decisions.

Property

If you retain property in Australia while living overseas, rental income will be taxed at non-Australia resident tax rates, which range from 30% to 45%. Negative gearing losses can still be carried forward and used to offset future Australian income once you return.

Selling property while you are a non-resident also triggers additional tax implications. You may not be eligible for the 50% CGT discount. If the property was your former family home, you could lose access to the main residence exemption, even if you owned it while you were a resident.

Following changes introduced in 2020, if you sell your family home while a non-resident, the CGT exemption will not apply, regardless of how long you lived there before moving overseas.

Shares and deemed disposal

When you cease being an Australian tax resident, certain assets, such as shares, may be subject to deemed disposal. This means you are treated as having sold the shares at their market value on the date you became a non-resident, potentially triggering a CGT liability. This is the case even if you didn’t actually sell the assets.

You can choose to elect these assets as taxable Australian property, in which case deemed disposal does not apply. However, gains made while you are a non-resident will be taxed at non-resident rates.

For dividends, the treatment depends on whether they are franked or unfranked. Fully franked dividends don’t attract withholding tax, but you also won’t receive the franking credit. Unfranked dividends are typically taxed at 15% if Australia has a tax treaty with the other country or 30% if not.

Cash and term deposits

Interest earned from bank deposits or term deposits is taxed at a 10% withholding rate for non-residents. This is generally deducted automatically before you receive the income.

Superannuation and SMSFs

You can continue contributing to your super while overseas. Pre-tax contributions may help reduce tax on Australian-sourced income, such as rental earnings. However, care must be taken with Self-Managed Super Funds (SMSFs).

To remain compliant, an SMSF must meet these conditions:

• Central management and control must remain in Australia (exceptions may apply if you are only temporarily outside Australia for up to 2 years)
• At least 50% of the fund’s active members must be Australian residents.
• Established in Australia or has assets in Australia at all times in the financial year

If your SMSF is deemed non-compliant, the tax rate increases from 15% to 45%, which can severely impact your retirement savings.

Watch out for tax obligations in your new country

In addition to Australian tax rules, many countries will assess you as a resident in their system, taxing you on worldwide income. This includes your Australian assets, such as investment properties, superannuation and shares.

For example, the US imposes harsh tax treatment on foreign ETFs and non-US domiciled investments, which can lead to unexpected penalties if you don’t structure your investments appropriately.

Navigating tax as an expat

The financial decisions you make before, during and after living and working overseas can have long-term tax implications. That’s why it’s essential to get professional advice from experts who understand both Australian and international tax environments.

At Apt Wealth Partners, our Expat Financial Planning team specialises in helping Australians living overseas protect and grow their wealth. Get in touch for personalised advice to help you make confident financial decisions, wherever life takes you.