What are the tax implications of moving overseas?

Moving overseas brings excitement and adventure, but it also involves a multitude of practical and financial considerations. Let’s be honest – it’s a logistical nightmare. Among these, understanding the tax implications of your move is (unfortunately) an important note to make on the never-ending to-do list. 

We’ve delved into two key scenarios: maintaining your Australian tax residency while moving overseas and transitioning to non-Australian tax residency if that’s what you choose to do. Whether you’re aiming to retain your Australian ties or exploring life as a non-resident, here’s what you need to know.

The Tax Repercussions of Maintaining Australian Residency When Moving Overseas

Most of us hold onto our Australian residency when moving overseas as an expat because more often than not, we plan to come back. Here’s what it means for the state of your tax affairs…

Worldwide income taxation and exceptions: the reach of Australian taxation extends globally due to your Australian residency. This means that your income, regardless of its origin, remains taxable. It’s important to note that double tax agreement treaties may come into play here and exceptions can arise, particularly if you become a tax resident of another country. It’s very much country dependent and you need to look up the scenario wherever in the world you’re relocating to. Here’s a full list of income tax treaties for Australia and every country in the world.

Foreign tax offset: another important consideration is the possibility of a foreign tax offset. If you’re already paying taxes in your new country of residence, you might be eligible for this offset when paying your Australian tax. You can find out how to do the calculation for your tax offset via the ATO here.

For example: (let’s dream big).

You move to Vanuatu, and buy an island. A couple of years later, you want to sell up. In Vanuatu, capital gains tax doesn’t exist. In this scenario a tax treaty might be in place that means you’re also exempt from paying CGT in Australia. 

Consulting tax authorities: to accurately determine your tax residency status and potential exemptions, we highly recommend consulting with the tax authorities of the country you’re moving to and letting your Australian accountant know well in advance of the move so they can advise you too. It’s a complicated area that means you need to look at your individual tax circumstance rather than taking a stab from a Google search!

Tax Considerations of Transitioning to Non-Australian Tax Residency

First thing’s first: unsure of your tax residency status? Here’s a helpful ATO tool.

Global income taxation ends: wave goodbye to worldwide income taxation. As a non-Australian resident, you’ll only be accountable for taxes on income sourced from your new country of residence. No more ATO for you.

Foreign income tax offset: you’re potentially in for a treat – a foreign income tax offset. This offset can effectively reduce the taxes you owe in your new resident country. 

For example:

Let’s say you decide to move to the south of France to live your best life and enjoy the Riviera. You become a non resident in Australia for tax purposes. You still rent out your investment property in Australia and therefore, will still need to pay tax in Australia at a non tax resident tax rate (there’s a tongue twister for you). You pay $10,000 of tax. In your French tax return, you will declare the Australian rental income received and you will be able to apply a tax offset of $10,000 in your French return.

Capital gains tax revisions: the sale of assets in Australia could still have tax implications. The capital gains tax you face will be influenced by factors like the duration of ownership and the profit generated.

Exit tax implications: some assets might attract an exit tax upon sale after you move overseas. This is an important aspect to consider in your financial planning.

Note: you won’t be charged both CGT and exit tax on the sale of the same asset. You may, however, be charged more CGT because of the exit tax. As a non-resident for tax purposes, you will no longer be eligible for the 50% CGT exemption for example. So expect the bill to be higher.

Superannuation adaptations: Expect shifts in your superannuation strategy. As a non-resident, contributing to Australian superannuation funds might be restricted, prompting potential transfers to foreign equivalents. It can also complicate accessing your super funds – this is an entire blog post on its own! It’s particularly important to consult your financial advisor about the knock on effects moving overseas will have on your superannuation.

Resident, non-resident… France or Brazil, there are endless scenarios when it comes to the tax implications of packing your bags and moving overseas. If you take one message away from this blog it’s this: you *must* speak to your accountant and financial advisor before getting on the plane! Find a time here.