Top 5 tax considerations you need to know when leaving Australia

I’m leaving Australia. Should I say goodbye to the tax office?

Your bag is packed and it’s time to say goodbye to the many friends you have made over the years. You don’t know if you’ll be back and it’s an emotional day.

Whatever the reasons for your departure, one thing is probably obvious – saying goodbye to the tax office is not on top of your to do list!

Maybe it should be to ensure you don’t squander any tax opportunities.

Resident Versus Non-resident tax rates you need to remember

As an Aussie resident for tax purposes, the first $18,200 you earn is tax free.  The next level from $18,200 to $45,000 is just 19% and from there to $120,000 is the same as the non-resident tax rate of 32.5%.  The tax savings are illustrated in the table below.

Example 1.0 For a individual earning a taxable income of $120,000 per annum

Resident Non-Resident
Taxable income % Tax $ Tax % Tax $ Tax
< $18,200 Nil $0 32.5% $5,915
$18,201 – $45,000 19% $5,092 32.5% $8,710
$45,001 – $120,000 32.5% $24,375 32.5% $24,375
TOTALS $29,467 32.5% $39,000

Don’t squander your tax opportunities

The day you depart (and lose your tax residency) you are deemed to have disposed of your assets for the purpose of calculating capital gains tax “CGT”.

This is because if you later sell these assets as a non-resident, they are usually not taxable in Australia. So, the tax office would lose out. In other words, you will be taxable on their increase in value from when you bought them even though you haven’t sold them. WAIT. WHAT?

A key exception to the above rule is assets like Australian real estate because that’s taxable no matter where you’re a resident – so the ATO don’t lose out. So in general, we are really talking about assets you own outside Australia.

There might be a better option

This might be difficult for people as in most cases there wouldn’t be any spare cash lying around to pay a tax bill when you haven’t actually received cash!

Thankfully the tax office knows this and they give you some options:

  1. Account for the capital gain (or loss) when you leave Australia, or
  2. Ignore it when you leave, and account for it later, like when you eventually sell the asset..

Now it might be tempting to go with option 2, (and you might be right) but there are a few things you should keep in mind when planning ahead.

With all that said, here’s my top 5 tax considerations you need to think about that could save you thousands in nasty tax;

  1. Consider accounting for the gain or loss when you leave and be done with it in Australia. Then any further rise in the asset value would not be subject to CGT in Australia at non-resident tax rates.
  2. You usually get a 50% discount on CGT in Australia. The discount is not available during the time you are non-resident. And you are taxed at non-resident tax rates shown in the table! This could mean a lot of unnecessary Australian tax at a later date.
  3. Usually if you pay foreign tax on the sale of an overseas asset, that foreign tax paid can reduce the Australian tax relating to the same asset. However, if you choose option 1 there will most likely be NO foreign tax to offset (as you have not sold the asset).
  4. What would happen if you became non tax resident (chose either option 1 or 2 above), did not sell the asset but later moved back to Australia again?
  5. Also don’t forget non-residents no longer get the main residence exemption. Yikes!

Need help to reduce your tax and maximise your travel funds?

If you or someone you know needs help, don’t keep me a secret – I’d love to help.  Good advice can boost your assets by hundreds of thousands of dollars and bad advice can be catastrophic.

So, feel free to drop me a line by clicking below.

Thanks for reading!

John Finnegan

0449 083 740

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