Australia Tax for Expats: ATO Requirements

Australian Tax Residency Tests

Australia determines tax residency through four tests. You are considered an Australian resident if you satisfy any one of them. The tests are applied in order, and the ATO examines your specific circumstances rather than relying solely on a day count.

The Four Residency Tests

The Resides Test is the primary test and is the most subjective. The ATO considers factors such as your intention or purpose of presence, family and business ties, maintenance and location of assets, and social and living arrangements. If you move overseas indefinitely with your family, establish a home abroad, and sever significant Australian ties, you are likely to be non-resident under this test.

The Domicile Trap

Many expats are surprised to learn they remain Australian residents under the Domicile Test. Your domicile of origin (typically the country where you were born) does not change simply by moving abroad. To break the Domicile Test, you must establish a new domicile of choice in another country and demonstrate that your permanent place of abode is outside Australia. Even maintaining a home in Australia for occasional visits can trigger this test.

Taxation as a Non-Resident

Once you are classified as a non-resident, the ATO taxes only your Australian-source income. You are not taxed on foreign employment income, foreign investment income, or foreign capital gains. However, the tax rates on Australian income are different—and often higher—than resident rates.

Australian Tax Rates for Non-Residents (2024/25)

Note that non-residents do not receive the tax-free threshold (which is $18,200 for residents) and do not benefit from the Low Income Tax Offset. Additionally, the Medicare Levy (2%) does not apply to non-residents, which partially offsets the higher marginal rates.

Capital Gains Tax on Departure

When you cease to be an Australian resident, the ATO applies a deemed disposal rule for certain assets. You are treated as if you sold all assets that are not "taxable Australian property" at market value on the date you departed. This can create a capital gains tax liability on shares, managed funds, and other investment assets, even though you have not actually sold them.

Taxable Australian property—which is not subject to deemed disposal—includes:

• Australian real property (including your former home)
• Business assets used in carrying on a business through a permanent establishment in Australia
• Shares in companies where the majority of assets are Australian real property
• Options or rights to acquire the above

You can choose to defer the CGT event by electing in writing within 6 months of ceasing residency. The election means that when you eventually sell the assets as a non-resident, Australian CGT will apply to the entire gain (not just the gain since departure). This election is irrevocable.

Principal Residence CGT Exemption

If you rent out your Australian home after moving overseas, you can continue to claim the main residence exemption for up to six years (the "six-year rule"). If you sell the property within six years of moving out, the capital gain is fully exempt. If you return to Australia and move back in, the six-year clock resets. Non-residents who sell Australian property must obtain an ATO Foreign Resident Capital Gains Withholding clearance certificate, or the buyer must withhold 15% of the purchase price.

Superannuation for Expats

Superannuation is a key consideration for Australian expats. While you are a non-resident, your Australian super fund continues to operate under Australian rules. The fund's investment earnings are taxed at the concessional rate of 15% (or 0% in the pension phase), regardless of your residency status.

Accessing your super as a non-resident is restricted. You generally cannot withdraw super until you reach preservation age (currently 60, rising to 60 for all by 2024) and meet a condition of release. If you do access your super while a non-resident, lump sum payments are subject to withholding tax:

Some countries tax Australian superannuation differently. The US-Australia tax treaty has specific provisions for super, but US tax treatment of Australian super remains a complex and contentious area. UK residents may face issues with HMRC's view of certain Australian funds under the Overseas Pension Transfer regime.

Foreign Income and Assets Reporting

If you remain an Australian resident while living abroad, you must report your worldwide income on your Australian tax return. Non-residents are not required to report foreign income but may need to file if they have Australian income above certain thresholds.

Australian residents with foreign income must also complete the Foreign Income Tax Return (FITR) schedule, which details foreign income, foreign tax paid, and foreign tax credits claimed. The Foreign Income Tax Offset (FITO) provides a credit for foreign tax paid on foreign income, capped at the Australian tax that would have been payable on that income.

Medicare Levy Surcharge and Private Health Insurance

The Medicare Levy (2% of taxable income) applies only to residents. Non-residents are exempt, which effectively reduces their overall tax burden compared to the headline rates. However, if you return to Australia mid-year and become a resident again, the levy applies to your income for the resident portion of the year.

Residents with income above AUD $93,000 (singles) or $186,000 (families) who do not have private hospital insurance face the Medicare Levy Surcharge of 1-1.5%. Non-residents are exempt from this surcharge as well.

Practical Tips for Australian Expats

1. File Form RAL (Resident or Non-Resident) with the ATO to clarify your status
2. Notify your Australian bank of your non-resident status to avoid providing tax file numbers
3. Consider whether to make the CGT deemed disposal election within 6 months of departure
4. Review your superannuation strategy—consolidate funds and review investment options
5. If returning to Australia, plan the timing to minimize residency complications
6. Keep records of your overseas rental, employment, and travel dates for at least 5 years

The Australia-US Tax Relationship

Australian expats in the US face additional complexity because both countries have robust tax systems. The US-Australia tax treaty helps prevent double taxation, but the interaction of US worldwide taxation with Australian rules creates filing challenges. Key treaty provisions include reduced withholding on dividends (5-15%), interest (0-10%), and royalties (5%), and a tiebreaker rule for dual residents based on permanent home, center of vital interests, and habitual abode.