Tax considerations for Australian expats moving overseas

Australians planning to relocate overseas should proactively consider important tax and financial factors before making the move. By planning in advance, this will help allow for tax planning opportunities and also avoiding unintended tax consequences.

1. Tax Residency

The first consideration is to determine if you will be an Australian tax resident or non-resident after relocating overseas.  Australians who do not break Australian tax residency will remain subject to tax on both Australian and overseas income, subject to relief under the applicable double tax treaty. Whether or not an Australian expat remains tax resident will depend on their social and living arrangements and intended length of stay overseas.

2. Capital Gains Tax

At the time of ceasing Australian tax residency, for Australian CGT purposes, an individual will be deemed to dispose of all non-Taxable Australian Property assets (e.g. shares). However, individuals are able to make an election to disregard the deemed disposal until the ultimate sale of the asset, or until such time as the individual becomes an Australian resident again. However, if a double tax treaty applies, the tax treaty may override this position such that the gain is taxable in that other country.

Since May 2012, foreign residents no longer qualify for the CGT discount, and specific rules apply based on whether the CGT asset was acquired before or after 8 May 2012.

3. Main Residence

An important consideration for many expats is what to do with their Australian main residence while overseas.

People often make this decision based on a mix of emotions, along with considerations related to taxes and finances.

Up until recently, the sale of a main residence was not subject to Australian CGT if sold within six years of when it first generated income. After the six years, your main residence should be partially exempt from CGT.

The government’s recent announcement indicates that foreign residents can no longer claim the main residence exemption upon selling their Australian property. Note that Parliament has not reintroduced the bill since the 2019 election. As a result, we should closely monitor developments in this matter.

It should be noted that where your main residence in Australia is left vacant, or you return regularly to stay in the property, this will increase the risk that you would be considered as a tax resident of Australia.

It is also important to consider how the country you are moving would seek to tax the sale of your Australian property and what relief is available under the relevant double tax treaty.

An appealing option for many expats is to rent our their main residence. Australian tax authorities would tax the rental income, and individuals must disclose it in their Australian tax return.

4. Trusts

Dealing with tax issues related to trusts becomes intricate, especially in the case of non-residents. It is advisable to seek professional tax advice.

It is important to consider the residency position of both the beneficiaries and the trust itself.  Further, income or gains that have accumulated while the individual was non-resident through an Australian or foreign trust but later paid to an Australian resident may also be subject to Australian tax.

5. SMSF

For individuals leaving Australia, managing the Australian Superannuation Fund requirements is important to ensure that the SMSF is taxed concessionally and not taxed at the highest marginal tax rate (currently 47%).

It is critical that the SMSF have its central management and control in Australia and also meet the Active Member Test requirements.  This generally means that the SMSF should not accept contributions from members while overseas and who are not tax resident (unless the fund has Australian resident active members who hold a majority member balance).

They should consider directing their contributions to a public offer fund while they are overseas.

6. Conclusion

Individuals should start planning well in advance of an overseas move to ensure there are no unintended tax consequences and there is sufficient time for tax planning.

Please contact us if you require further information.