Good news: Australia offers tax breaks for some expats. Read all about these tax breaks and what else you should know come tax season in our handy guide.
December 3, 2020 — 6 min read
Today, many people emigrate to Australia for employment or economic purposes. Most of the rest do so for personal or political reasons. Australia has the world’s tenth-highest per capita income, making it an attractive destination for expats from around the world.
But when you’re an expat, there are special financial considerations that you’ll need to allot
for. For example, international funds transfer fees are very important and can add up. Very few expats completely pull up stakes and leave it all behind. Sending money overseas is usually part of their weekly routines.
Another key financial consideration is expat taxes. Taxes can be confusing (and expensive) enough for citizens. When you’ve a recent transplant (and especially if you don’t have citizenship), they can get even pricier and even more complicated. But you don’t need to wait until tax season to figure out. We’ve got all their information on taxes for Australian expats, right here.
Steady tax revenue is the foundation of stability in most places, and Australia is no exception. All residents pay Australian taxes on all revenue they earn in-country, including:
Capital gains on an Australian asset (more on that below),
Annuity and pension income,
Self-employment income, even if the client is overseas,
Rental income, and
Note that this list did not include royalty, interest, or dividend income. Foreign expats generally do not pay taxes on such revenue, if the paying institution withheld money for taxes. Most institutions are willing to withhold, if you notify them of your citizenship status.
Expats also do not pay Australia’s Medicare levy. So, their taxes are a bit lower, and they are generally ineligible for these health benefits. More on that below as well.
Most expats in Australia are residents. These individuals are domiciled in Australia and have been intermittently or continuously present for at least half of the previous tax year. For tax purposes, residents are essentially citizens.
Some expats qualify for temporary resident status. Generally, these individuals live
in Australia for less than four years. A few other qualifications apply as well. For example, temporary residents cannot have spouses who are Australian residents (note we said residents and not citizens).
The typical temporary resident works for a foreign company and is in Australia temporarily
to work on a large project, set up a branch location, or perform similar services. Anyone with a 457 visa who meets the other requirements is usually eligible for temporary resident status.
Temporary residents only pay Australian taxes on Australian-sourced income, such as a
local job, local freelance gig, or local rent income. Foreign-sourced income is tax-free, at least in Australia. Temporary residents also pay different capital gains taxes. Roughly the same Australian-sourced rule applies. So, temporary residents can have significant foreign investment holdings and pay no Australian taxes on them.
Be advised that if your temporary stay in Australia becomes permanent, and you want to apply for permanent residency, all these income sources become taxable, so your Australian tax bill could go through the roof.
The government calculates expat taxes just like everyone else’s taxes. A big difference
between Australia and places like the United States is that the Aussies always use a fiscal year instead of a calendar year. The fiscal year runs from July 1 to June 30.
Most people only pay taxes on cash employment compensation. Non-cash compensation, like a housing allowance, is subject to an employer-paid FBT (Fringe Benefit Tax). Recall that, for temporary residents, only Australian-sourced income is taxable.
The rules for self-employment or dividend income are probably familiar as well. Franked
dividends (taxed corporate profit dividend income) works a bit differently. The tax rate could be as high as 30% or as low as 15%, depending on treaty language and a few other factors.
Foreign-sourced income may be subject to the foreign tax offset. If the individual paid foreign taxes on the income, Australia allows a deduction for the Australian taxes owed or the foreign taxes paid, whichever is lower. Temporary residents are not eligible for this offset, since they pay no taxes on such income.
Typically, the first AUD$20,500 is exempt from annual taxation. Thereafter, the tax rate ranges from 19% for lower incomes to 45% for higher incomes.
In most cases, 50% of the capital gains on any asset acquired after 1985 are taxable. “Assets” are broadly defined in Australia to include almost any tangible property that has any value. Special rules could apply to expat-owned rental property. Special rules could also apply to any temporary resident-owned property acquired after 2012. Capital losses are not tax-deductible. Instead, they can offset any future capital gains taxes in any future year.
The complex capital gains tax rules do not apply to most expats. The Medicare levy,
however, usually touches everyone. Residents (but not temporary residents) must pay a 2 percent levy, assuming they qualify for services. Australian and New Zealand citizens, Australian residents, and Australian resident applicants are generally eligible for Medicare.
This levy is not a flat tax. Some low-income taxpayers might be eligible for relief. At the other end, some high-income taxpayers, especially those with certain levels of health insurance, often pay an additional 1 or 1.5%.
Got all that? Good news—we’re done. That’s all you need to know about paying taxes as an Australian expat!
Australia has a reputation as a high-tax country. But not all expats must pay all these taxes. That’s good news for temporary residents who want to reduce their tax liability. Another way to make your money go further in the Land Down Under is to trim excess fees from foreign funds transfers.
Because of our decades of experience in the sector, Xe’s foreign transfer fees are among the lowest in the industry, and have allowed us to help over 1 million customers around the world. We’ve made a difference for lots of families, and we can make a difference for your family as well.