As a non-tax resident of Australia, you’ll only pay tax on your Australian-sourced income, pay no capital gains tax on shares and only pay 10% withholding tax on interest – meaning you could significantly reduce your Australian tax bill.
Tax is complicated and fairly boring. It’s probably one of the last things you want to think when you’re living overseas.
Being overseas = adventure, vibrancy, exploration.
Tax = boring, calculators, convoluted language.
They just don’t go together.
But, tax, or the lack thereof, is potentially a huge enabler, or money saver, when living overseas.
By becoming a non-resident of Australia for tax purposes you have the potential to save thousands of dollars each year.
Non-residents for instance are:
- only taxed on income they earn from Australian sources
- not subject to capital gains tax (except property)
- charged a low withholding tax on interest, royalties and dividends.
‘So what?’ you might be thinking.
Here’s a more in-depth look at why becoming a non-resident for tax purposes can be good.
Note: Your tax residency is entirely separate from your citizenship or ability to live somewhere. A non-resident for tax purposes is still an Australian citizen and can return at any time.
Worldwide income taxed in Australia
Australia has a residential-based tax system. This means tax is charged on your entire income based on where you live, not where the income was sourced.
Residents and non-residents are treated differently for tax purposes. Here’s how some common forms of income are treated for each type:
|Type of income||Resident||Non-resident|
|Employment income (wage)||Taxed at progressive rates up to 45%. Worldwide income is taxed.||Taxed at progressive rates up to 45%. Only income from Australian sources is taxed.|
|Capital gain (from property)||At your marginal tax rate (capital gains are halved for investments held longer than a year, and are zero for a primary home). Worldwide gains are taxed.||At your marginal rate. Only capital gains from Australian property are taxed.|
|Capital gains (from shares or managed funds)||At your marginal tax rate (capital gains are halved for investments held longer than a year). Worldwide income is taxed.||No capital gains tax (except for companies mainly dealing in real estate ie. real estate investment trusts)|
|Dividends and bank interest||At your marginal tax rate (dividends may be franked and therefore effectively taxed at 30%). Worldwide income is taxed.||10–15% withholding tax depending on the tax treaty with your country of residence. Only Australian sourced earnings are taxed.|
Data sourced from the Australian Tax Office.
The big difference is that residents are taxed on all of their income regardless of where they earned it; non-residents are only taxed on Australian-sourced income. The other big one is non-residents have no capital gains tax on shares and only pay 10% withholding tax on interest.
As a non-resident of Australia, if you earn income from outside Australia and only hold investments in shares or managed funds (must not be property related), your taxes in Australia will be basically non-existent.
So if you don’t live in Australia, the Australian government doesn’t want to tax you. You will, however, be required to pay tax somewhere.
Just like Australia has a residential-based tax system, most other countries also tax you if you are a resident. For example, if you live and work in the Netherlands, you won’t pay tax in Australia but will most likely pay tax there. A non-resident is not necessarily a non-tax payer.
Downsides of being a non-tax resident
There are disadvantages to being a non-resident of Australia:
- You won’t be able to (and shouldn’t) access Medicare.
- You shouldn’t be enrolled to vote.
- It will make it impossible to be eligible for Centrelink benefits.
- If you do make money in Australia, it is taxed at non-resident rates, which are effectively higher than for residents.
So, you still end up paying tax somewhere else and lose some of the benefits of being an Australian. You’re probably wondering what the point of all this non-residency stuff is then?
Why be a non-tax resident?
The reason to be a non-tax resident of Australia is to take advantage of favourable tax conditions in another country. It’s not to cheat or hide, but to take advantage of the tax laws of a different country, where taxes are lower than Australia. Take Singapore for example:
- The highest income tax rate is 22%, but you would need to earn over SGD 320,000 to pay that much. Someone earning SGD 100,000 will pay more like 6%.
- Generally, there is no capital gains tax on property or shares.
- Interest earned from bank deposits is not taxed.
- Dividends are taxed at a company level, at a rate of 17% (like franked dividends in Australia, except half the rate).
- Singapore does not tax worldwide income, only income sourced in Singapore.
As you can see, taxes in some countries, like Singapore, are very favourable for residents.
Australia vs. Singapore tax
Let’s assume you moved to Singapore for five years. Each year you were paid AUD 70,000 by your employer and earned additional income from a concoction of investments.
|If you lived in Singapore (i.e. non-tax resident of Australia)||If you stay in Australia (i.e. tax resident of Australia)|
|Type of income over five years||Tax in Singapore||Tax in Australia||Tax in Australia|
|Wage: $350,000||$13,250||Not interested.||$71,500|
|Capital gain on a unit in Singapore: $50,000||Good for you. No tax.||Singapore can deal with it.||$7,500|
|Interest on a bank deposit in Australia: $5000||Doesn’t care.||$500||$1,500|
|Capital gain from shares in Telstra (ASX listed): $20,000||Nice investing, don’t worry about tax.||Thank you for investing in our country. No tax.||$3,000|
|Capital gain from shares in Apple (NYSE listed): $100,000||Zero.||Not even remotely interested.||$25,000|
*Currency is Australian dollars (AUD)
By living in working in Singapore you could save AUD 94,570 in tax over five years (or AUD 18,950 each year).
That is the reason for being a non-resident for tax.
There are two ways you can look at low taxes. Somewhere like Singapore, you could afford to earn AUD 18,950 less each year and take home the same amount of money as if you were in Australia. Or, you could be continue being paid AUD 70,000 in Singapore and take home AUD 18,950 more each year than if you were in Australia.
So, if you already live overseas but are still paying tax in Australia, consider your opportunity to be a non-resident and pay tax where you live. If you still live in Australia and want another reason to consider living overseas (other than it being really cool), then the opportunity for low taxes is an interesting one.
Disclaimer: I am not a lawyer or accountant in any country, nor have I ever worked for the Australian Tax Office (ATO). I am in no way qualified to give you specific advice. I am, however, an Australian and now a non-resident for tax purposes. This information is based purely on my personal experience and publicly available information.
I do not condone cheating or avoiding tax obligations. However, there is nothing wrong or illegal with being a non-tax resident of Australia or paying tax in another country. If you live in Australia, play by Australia’s rules and pay Australian tax. If you do not live in Australia, then play by the rules of where you live.