Tax Guide For Australian Nomads
A growing number of Australians are making the transition to location independence. This transition often comes with tax consequences and in this article, I explain what they are. I also cover how Australian taxation works for non-residents.
Simon @ FS / Melbourne, Victoria
Tax residency
Australia is one of the world’s most livable countries. Its twenty-seven million or so people enjoy access to a number and variety of opportunities rivaled by few. Unfortunately, the scope of Australia’s taxation system is also rivaled by few and things are likely to get worse as the ATO continues its war on tax base erosion and evasion.
Australia is a residential taxation country, this means that tax residents pay Australian taxes on their worldwide income while non-residents only pay Australian taxes on their Australian income.
For those who qualify as tax residents, federal rates are progressive and range from 0% up to 45%. There are no state or municipal income taxes in Australia, although there are state payroll taxes in certain situations. There is also no capital gains tax per se, instead, gains are taxed as regular income (discounts are available based on circumstances). Deductions, tax credits and allowances are available provided that certain conditions are met. There are no wealth and no inheritance taxes in Australia. There is a state-level stamp duty with rates of up to 6.50%. A medicare surcharge of 2% is applicable in specific circumstances. An annual return must be filed by all taxpayers with taxable income and the deadline for payment is the 31th of October.
Leaving Australia
In the vast majority of residential taxation countries, a physical presence test is used to determine tax residency. If you pass the test, you are deemed to be a resident while if you do not, you are deemed to be a non-resident. In most cases, 183 days is the magical number although it may vary in some countries.
In Australia, the domicile rules are the primary factor used to determine tax residency. Under the domicile rules, you are deemed to be a tax resident of the country where you have the most ties. In this context, ties include physical assets (house, car, RV etc), financial assets (bank accounts, credit cards, pension etc), social connections (close family, memberships etc) and work connections (business, employment etc).
As a result, the only sure way of “leaving” Australia for tax purposes is to cut as many ties as possible, while establishing new ties elsewhere. Physically leaving without establishing ties in a new country is likely to result in the ATO continuing to deem you a tax resident of Australia. It is important to note that your new ties should be as permanent or long term as possible. There have been a number of court cases involving Australians living abroad on temporary residence permits (one year in most cases) with the ATO successfully arguing that the defendants should be deemed tax residents of Australia based on the limited duration of their residence permits, indicating a lack of long-term motivation to remain in the new country. Click here for more details regarding non-residency and the ATO.
Now on to the technicalities of moving. Before you move, or within seven days of moving, you will have to update your myGov account details. Assuming you are leaving Australia permanently (to become a non-resident for tax purposes), you will be able to file your final return early (before departure), this is recommended as it will be easier to handle the process from within Australia. See the ATO’s instructions here for more details. You can also file during the normal filing period.
If you have a super, you will be able to keep it with no consequences or changes in its status (in Australia, see the rules in your new country of tax residency for details on how such accounts are treated for tax purposes). You will still have to abide by the same rules when it comes to accessing it. The only exception is if you move to New Zealand, in which case you can transfer your super to the Kiwisaver scheme.
If you have study and training support loans, you will have to keep paying them as if you were still a resident for tax purposes. As part of the repayment process, you will have to report your worldwide income and may face a surcharge if you exceed specific thresholds.
If you have assets that you acquired while living in Australia, you will likely have to pay capital gains tax on their market value when you become a non-resident even if you have not disposed of said assets. This “exit tax” applies to real assets as well as financial instruments (including cryptocurrencies), shares in unlisted companies etc. See the ATO’s guide here for more details.
Taxation for non-residents
If you do qualify as a non-resident for tax purposes, you will only need to file a tax return in Australia if you receive Australian income for which tax was not automatically withheld at the source.
Selling to Australian customers, and working for an Australian employer does not generally constitute Australian income for tax purposes, if your work is performed overseas. If you sell to Australian customers, however, other considerations may apply, such as GST (VAT).
