04.1The tests the ATO applies
Tax residency has its own rules. The ATO doesn’t use the Department of Home Affairs’ rules, so a person can be a tax resident without being a citizen or permanent resident, and a visa doesn’t by itself make anyone a tax resident.
- The resides test
- The main test. If you reside in Australia, you are a resident for tax and the other tests don’t matter. Among the factors the ATO weighs are physical presence, intention and purpose, family, business or employment ties, where your assets are and how they are kept up, and your social and living arrangements.
- The domicile test
- You are a resident if your domicile, your permanent home in law, is in Australia, unless the ATO is satisfied that your permanent place of abode is somewhere else.
- The 183-day test
- Being in Australia for more than half the income year, in one stretch or several, makes you a resident, unless your usual place of abode is overseas and you don’t intend to take up residence here.
- The Commonwealth superannuation test
- For Australian Government employees at Australian posts overseas who contribute to the CSS or PSS schemes, along with their spouse and children under 16.
Failing the resides test still leaves you a resident if any one of the other three applies. How the tests fall for one person depends on that person’s facts; the ATO has an online tool to help work it out, and a registered tax agent can advise on a particular case.
04.2In the year you leave
If you go from resident to foreign resident part-way through an income year, the ATO asks you to answer “yes” to “Are you an Australian resident?” on that year’s return, so you are taxed at resident rates, with a tax-free threshold cut back to the months you were a resident.
Several other things change from the day you stop being a resident:
- Medicare levyForeign residents don’t pay it. The days of the year you weren’t a resident are claimed as exempt days.
- Income from overseasForeign-source income from after that date doesn’t go in your Australian return.
- Australian interest, dividends and royaltiesThose received after that date are taxed by withholding, as a final tax, and are left out of the return.
The part-year tax-free threshold is $13,464 plus $4,736 divided by 12 and multiplied by the number of months you were a resident, counting the month you left.
Two people leave Australia in the same income year, which runs from July to June. One leaves in September, the other in March.
September: July, August, September = 3 months
$4,736 ÷ 12 × 3 = $1,184
$13,464 + $1,184 = $14,648
March: July to March = 9 months
$4,736 ÷ 12 × 9 = $3,552
$13,464 + $3,552 = $17,016
Leaving later in the year keeps more of the threshold. This is arithmetic on the ATO’s formula, not an assessment: whether and when someone stops being a resident is decided by the tests above.
04.3Capital gains tax: a sale that isn’t one
When you stop being a resident for tax, you are treated as having disposed of your capital gains tax assets at their market value on that day. The ATO calls this deemed disposal. It doesn’t apply to taxable Australian property, because foreign residents remain taxed on that kind of asset anyway.
| Asset | On the day you stop being a resident | The discount |
|---|---|---|
| Not taxable Australian property | Treated as disposed of at market value. | The full 50% discount can be claimed on that deemed disposal if you were always a resident while you owned the asset. |
| Taxable Australian property, such as real estate in Australia | Nothing happens yet; the CGT event comes when you actually dispose of it. | For an asset bought after 8 May 2012 and sold as a foreign resident, the full discount isn’t available, though an apportioned one may be for the time you were a resident. |
Temporary residents who stop being residents are not treated as disposing of any assets.
Choosing to put it off
An individual can instead choose to disregard every capital gain and loss on leaving. The assets are then treated as taxable Australian property until a CGT event happens to them, such as a sale, or until you become a resident again, so any rise or fall in value after you leave is counted when that happens. There is no form for the choice: the ATO says the way you prepare your return is generally evidence enough.
04.4A study or training loan
A HELP debt (once called HECS), a VET Student Loan or an Australian Apprenticeship Support Loan comes with two obligations if you intend to live overseas for 183 days or more in any 12 months.
- Within 7 days of leaving
Overseas travel notification
Lodged through ATO online services in myGov, or by a registered tax agent, with your passport details, the country you will live in and your departure and expected return dates. Keep your contact details current while you are away. A short visit home, such as a holiday, doesn’t need a new notification.
- By 31 October each year
Worldwide income, or a non-lodgment advice
Report your worldwide income for the Australian income year, or lodge a non-lodgment advice if it was low enough. Lodging on time avoids a late penalty even if you can’t pay straight away, and a tax agent may be able to lodge later than 31 October.
A non-resident whose worldwide income is $16,750 or less, a quarter of the minimum repayment threshold, lodges a non-lodgment advice. Above that, they report their worldwide income.
The loan keeps being indexed every year until it is repaid, so it can grow if nothing is paid off. Voluntary payments can be made from overseas at any time.