Co- Authored by Bailey Fraser
Whether it be for work, lifestyle or adventure, people relocate overseas temporarily or permanently all the time. Careful consideration is commonly given towards the taxation of one’s salary overseas however, far fewer consider how moving will affect their assets (if any) back in Australia.
It is important to note that the notion of Australian citizenship or nationality and the notion of being a tax resident in Australia are separate (you can still be an Australian citizen whilst being a non-resident for Australian tax purposes). An Australian tax resident is ordinarily liable to be assessed on worldwide income. A non-resident for Australian tax purposes is only liable to be assessed for Australian tax on Australian sourced income.
You are an Australian resident for tax purposes if any of the following apply:
- You reside in Australia
- Your domicile (permanent place of abode) is in Australia
- You are in Australia for more than 183 days of an income year OR
- You are a contributing member of the Public Sector Superannuation Scheme or Commonwealth Superannuation Scheme
Examples of tax implications on change of tax residency to consider
Deemed disposal
In relation to your Australian assets, when you move overseas and become a non-resident for Australian tax purposes, you are taken to have disposed of Capital Gain Tax (CGT) assets (excluding taxable Australian property) for their market value at the time you stopped being a resident. For example: investment in shares, personal use assets more than $10,000, etc.
50% CGT discount
If you are a foreign resident for tax purposes, the full 50% CGT discount won’t be available when you dispose of an asset that you acquired after 8 May 2012. If you were a foreign resident for the entire ownership period you aren’t entitled to any discount. If you were an Australian resident for some of your ownership period, you can claim an apportioned discount for the applicable period.
Main residence exemption
If you’re a foreign resident, you aren’t entitled to the main residence exemption from CGT for property sold after 30 June 2020 unless you satisfy the life events test:
- you were a foreign resident for tax purposes for a continuous period of six years or less
- during that period, one of the following occurred:
- you, your spouse or your child under 18 had a terminal medical condition
- your spouse or your child under 18 died
- the CGT event happened because of a formal agreement following the breakdown of your marriage or relationship.
Self-Managed super fund
A notable area where issues can arise is self-managed super funds (SMSFs). A SMSF is an Australian superannuation fund if:
- The funds are established in Australia or any fund assets are held in Australia
- Central management and fund control is ordinarily in Australia and;
- It has no active members or has active members who are Australian residents holding at least 50% of the total fund balance.
A move overseas of a member/trustee of the SMSF can cause the SMSF to cease to be an Australian superannuation fund and non-compliant as central management and fund control are no longer in Australia. This would have serious impacts, as a non-compliant SMSF is taxed at the highest marginal tax rate (currently 45%) instead of the concessional tax rate (15%).
If you’re a member of a SMSF, it is important to take steps to ensure the SMSF retains Australian tax residency before you leave Australia.
If you are planning to move overseas and have concerns about the tax implications for your Australian assets, please contact our Tax and Super team.
