Thinking of leaving Australia for overseas? This is a must read to get your head around the effects on your Australian tax return.

For many reasons we may decide to leave Down Under to seek new beginnings or maybe pursue a new job overseas.   From the outset, the normal person would think “I’m overseas now so the money I make while over here has nothing to do with my Australian tax return.” but this couldn’t be further from the truth.

Where you are physically located in the world is not the only factor that determines your tax residency. It has been said that it is easier to prove to the Australian Tax Office (ATO) that you have died and come alive again a year later than to convince them that you are now a “Non Resident” for Australian tax purposes.

Say for instance, you are going to Europe for a working holiday. In this case, the “holiday” aspect shows you have no intention of staying permanently, so you are in fact still a resident for tax purposes in Australia and as such must declare the income earned while overseas in your Australian tax return. There is a section where you can include the foreign tax paid as a tax offset in your personal tax return to provide some relief of double taxation.

On the other hand, if you have the intention to go to Europe to make a go of living there long term, you would still need to assess things such as: whether you intend to return permanently to Australia, the roots put down in the new country such as buying a house or marrying, duration and frequency of visits to Australia, continuing family connections to Australia (e.g spouse, children). You would need to show behaviour consistent of living permanently overseas such as relinquishing bank accounts in Australia, having your immediate family with you – such as your spouse and dependent children and the cutting of ties to your Australian community, sport and social commitments. The ATO has the capacity to access arrival cards that are filled out from incoming passengers to Australia so if you have ticked that you are a resident returning when trying to build a case that you are a Non-Resident clearly this shows inconsistency.

Now, say you have determined that you are a non-resident for tax purposes, you will need to let the Australian Tax Office know on your tax return that you have changed your tax status. Another important inclusion that needs to be addressed in the same tax return is the deeming of worldwide capital gain assets (excluding Australian real estate) as being sold. You have two options here, either to deem them as sold at the date you became a non-resident (even though they are still in your ownership) which would mean you include them as being sold at their market rate accounting for any capital gain or loss. Or option two which is the decision not to include the deemed sales in your tax return. By not including them in your tax return, you are effectively advising the tax office that you will declare the sale of the capital assets in your tax return when they do sell. When making this election it is an all or nothing declaration. You can’t pick and choose which assets you will declare now and which later. There is compelling reasoning to go the first option if you believe that the assets are likely to appreciate in the future.

When you know you are a non-resident, it is advisable to let any institution you receive interest, unfranked dividends or royalties from, know that you now are living overseas so that they can start to withhold tax. This will be a final tax, so they will not need to be declared in any Non-resident tax returns.

And what about if you rented out or just let family live rent free in your principal place of residence in Australia while being a non-resident? Well, new rules have come into effect from 9.5.17 which means your principal place of residence (PPR) will cease to be your PPR when you become a non-resident, meaning capital gain exemptions no longer applies. To assist those Non-residents that held a PPR prior to this date, you have until 30.6.19 to sell the property to claim this exemption.

Added to this, new legislation starting 1.7.17 means there are obligations for non-residents with a HELP debt formerly known as Higher Education Contribution Scheme (HECS) or a trade support loan (TSL) to make a repayment each year if your overseas income reaches the repayment thresholds. You can report your income either through mygov or through a tax agent.

In any case, identifying your residency for tax purposes can be complex and quite subjective. Furthermore, as shown there can be other ramifications that flow from being a non-resident for tax purposes. This is only a simplified overview and does not take into consideration all the possible ways non-residency status for tax purposes can affect you. It then makes financial sense to seek the advice of a tax practitioner to get a personalised assessment.

Contributed by

Leanne Apiata CA

Senior Accountant

Jewell Moore Chartered Accountants