Your residency status really does affect you financially. The question of whether you are a Resident or a Non-resident for Australian tax purposes has a significant impact on your financial position and tax liability. You may have decided that the grass is greener over the other side of the world and you are packing up and leaving Australia to give it your best shot. Or alternatively, you may be arriving in Australia with the idea or making Australia home. Each individual’s personal circumstances are unique. This is why specific tax advice should be sought to determine your status for Australian tax purposes and to help manage your tax affairs.
Residency status – why does it matter so much?
Australia has one of the highest personal income tax rates in the world. So the motivation for most Expats is to avoid Australian income tax by breaking their Australian resident status and becoming Non-resident for Australian tax purposes. Non-residents do not pay Australian income tax on employment income and other Australian income. To highlight the point that an individual’s residency status can significantly effect their financial position, take the following example:
- Joe is 25 year old newly gradated civil civil engineer
- Joe has just accepted an opportunity in Dubai (UAE)
- Joe’s income will be the equivalent of AUD $90,000 (262,000 UAE Dirhams) and he starst working on 1 July 2017
- One key motivator for Joe in taking the role is that he heard from a university friend that Dubai does not charge income tax
- Joe plans to spend an indefinite time in Dubai to save to buy a home in Sydney
- Joe will ultimately return to Australia to live where he plans to find employment, to marry and start a family
Non resident for Australian tax purposes?
If Joe qualifies as a Non resident for Australia tax purposes his employment income is tax free. This means that Joe will not have to pay Australian tax of AUD $22,732 (excluding his compulsory HECS repayment of $6,300). This tax saving will significantly boost Joe’s cash position.
Resident for Australian tax purposes?
If Joe doe not break Australian tax residency status then his income will be taxed at Australian resident tax rates to the tune of $29,032 (including compulsory HECS repayment of AUD $6,300). That is Joe, will have to pay an additional AUD $22,732.
How to become a Non-resident for Australian tax purposes?
Non residency Checklist:
There are a number of actions you need to take to become a Non-resident for Australian tax purposes. Our tax advice provide a checklist of action steps you need to complete to become a Non-resident for Australian tax purposes. Our advice is based on the ATO Audit letter – which is the document that the ATO would require you to respond to if you were chosen for an ATO Audit – and provides a practical guide to obtaining Non-residency status.
Benefits of becoming a Non-resident for Australian tax purposes
Listed below are the key benefits in becoming a Non-resident for Australian tax purposes:
- Nil Australian tax on employment income
- Nil Medicare Levy and Nil Medicare Levy Surcharge
- Minimal Withholding Tax on: Interest income (10%), Unfranked Dividend income (normally 15%, sometimes 30%), Unfanked Distribution income (normally 15%, sometimes 30%)
- Reduced reporting requirements to the ATO
- Cheaper Tax Agent fees
- Nil Capital Gains Tax on Australian listed shares when purchased as a Non-resident
- Ability to exit appreciating Australian Assets from the Australian tax system without selling the underlying Asset to avoid high level of tax
Calculate your residency status (guide only)
Use our free tax residency calculator. Our residency calculator will give you a guide (Not specific tax advice you can rely on) to determine your residency status as a Resident or Non-resident for Australian tax purposes. TXM can confirm your residency status and provide specific tax advice to you which you can rely on.
Good tax planning saves you money
There are a number of other tax minimisation opportunities and benefits available depending on your personal circumstances and tax planning. We encourage you to make contact with us to discuss your tax position and tax needs. We offer a free initial consultation over the phone to discuss how we could assist you and will provide a fixed fee quote for our services prior to starting work.
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Important: The above commentary is for information purposes only and does not constitute tax advice upon which you can rely. If you are seeking formal tax advice, please make contact with us. TXM Chartered Accountants provides nil warranty for any loss or damage caused as a result of relying on the above information.