Questions on Australian Tax Residency

10 Jul 2011 |

The residency of a person dictates how their income is taxed. But the residency tests used by the ATO are different from Australian citizenship tests. Under income tax law whether a person is a resident is decided by a series of tests.

The first of those tests requires a person to have resided in Australia continuously for a period of 183 days. The next and more important test is the domicile test that requires a person to establish their normal place of abode. The application of this test can result in someone who has been in Australia for more than 183 days being classed as a non-resident for tax purposes, and someone who has been overseas for longer than 183 days classed as a resident.

Normal place of abode is effectively where a person’s home is. That is why a backpacker who spends two years travelling and working around Australia, but has their home to go back to overseas, would not be classed as a resident. Conversely someone who takes up an overseas job for three years, but retains their home in Australia, would be classed as a resident for tax purposes.

Q. I am an Australian working abroad for an international organisation and no longer pay taxes in Australia. I am interested in buying an investment property in Australia and wanted to know if there are any specific taxes or legal considerations I should be aware of.

A. From what you have said it would appear that you have sold your home in Australia and as such you have a new home in the country where you are working. This will mean as a non-resident you only pay tax on Australian income.

If you purchase a rental property any profit you make is taxed at 29 per cent up to $37,000 and then tax is paid at the normal marginal rates from there. If you make a loss from the rental activities this can be used to decrease any other income earned in Australia. If you still have a net rental loss this is carried forward until other income is earned. If you sell the property and make a capital gain tax will be payable on the gain.

Q. I have been living and working with my family overseas since June 2005. We bought a home in Brisbane nine months before we departed and have had it rented out the entire time we have been overseas. Rental property expenses have exceeded rental property income by about $12,000 per year these past five years. How are these losses treated and is there a limit to the number of years we can claim tax losses and the level of accumulated tax losses?

A. If you return to Australia to live the accumulated losses can be offset against all income you earn in from then. There is no limit on the years or the amount of losses that can be carried forward. If you return to Australia after 6 years you will lose the principal place of residence exemption on the property and capital gains tax will be payable.

Q. We are non-resident Australian citizens currently living and working overseas. We intend to be overseas for a few more years. As non-residents, how can we go about setting up a family trust to buy properties in Australia?

A. There are many companies that provide trust formation set up services to the general public and professionals. You should consider contacting an Australian accounting firm like TaxBiz that will be able to assist with the process and provide tax and other advice you may need.


  • Robert

    23 Dec 2011

    If someone has a home abroad (thailand) no home in Australia, is contracted by a company in Australia and paying Australian tax but does not live in Australia or spend more than 14 days in Australia per year can that person claim his tax back for that year

  • Michelle

    12 Apr 2013

    This is an interesting article - thank you for posting it Max. My questions/situation is similar but slightly different to those above. We too are posted overseas but have our primary residence and investment property back home which I am deriving rent from both. I would like to sell the investment property while overseas and wonder if I should do so (and what are the CGT implications as it is VERY confusing) or should wait until we're back in Oz and are there the183 days. The same goes for our primary place of residence. Should we sell while we are OS and pay higher CGT I imagine (it's hard to know) or wait until we're back in Oz the 183 days. At this stage we're only looking at being 3.5 years overseas.

  • Michelle

    12 Apr 2013

    I forgot to add that I am also aware the ATO is looking at changing the rules for foreign residents who have Australian property also, but am not too sure how this will impact our plans/desire to sell the houses and buy a new one when we're back home.

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