f you are a resident of Australia for tax purposes, you are taxed on your worldwide income, including any foreign income.
Foreign income includes:
- Foreign employment income
- Foreign investment income
- Foreign business income
- Capital gains on overseas assets
- Foreign pension and annuities.
If you are non-resident for tax purposes, you are only taxed on your Australian sourced income.
As a non-resident, you will only be taxed on the following types of income:
- Unfranked dividends
- Australia property income
- Capital gains on Australian assets.
Interest, Unfranked Dividends and Royalties
If you are a foreign resident, tax is generally withheld in Australia from interest, unfranked dividends and royalties you earn in Australia.
Before you go overseas, you should advise your Australian financial institution that you are intending to become resident and they will then deduct withholding tax at a rate of 10% from your interest income.
If you forget to advise your Australian financial institution of your overseas address, you can include the interest income in your annual income tax return and you can pay the tax owing when the Tax Office issues an assessment.
In relation to dividends, if you own shares, you should advise the registry of your overseas address and the company you have invested in will then deduct withholding tax on any unfranked dividends paid.
In relation to royalties, you should advise the payer of your overseas address and the payer will then be obliged to deduct withholding tax and remit the money to the Tax Office.
The rate of withholding tax will vary depending on whether you are living in a treaty country or not. The tax rates are summarised below:
|Treaty countries||Non-treaty countries|
|Interest||Some agreements provide an exemption from withholding tax in certain circumstances||10%|
|Unfranked dividends||Most agreements reduce the rate to 15%||30%|
|Royalties||Most agreements reduce the rate to 15%||30%|
If you need proof of payment of withholding tax to comply with the tax law of the country where you are based, you can ask your payer to request a Certificate of payment from the Tax Office.
Australian property income
Your Australian property income will continue to be subject to tax in Australia when you go overseas. You must report all income and deductions in your annual tax return.
If the property expenses exceed the property income, then you can claim a loss which can be applied against other sources of income. If your taxable income is negative – as a result of ‘negative gearing’ – you can carry forward the loss and apply it against future income.
There is no limit to the amount of losses you can carry forward to offset against future income and there is no time limit on how long you can carry forward losses.
The extent to which you utilise losses against future income is up to you. For example, in the first year back from an overseas assignment your income might be lower than normal. If your marginal rate was likely to be higher in the second year after returning from overseas, you might consider deferring using the losses until the following year.
For more information on owing real property in Australia, click here.
Capital Gains Tax
A capital gain is the difference between what it cost you to acquire an asset (the ‘cost base’) and the net proceeds you received you sold or otherwise disposed of it.
If you are a foreign or temporary resident and you make a capital gain when you dispose of ‘taxable Australian property’ you may have to pay Australian capital gains tax (CGT).
Taxable Australian property includes:
- a direct interest in real property, or a mining, quarrying or prospecting right to minerals, petroleum or quarry materials
- a CGT asset that you have used at any time in carrying on a business through a permanent establishment in Australia
- an indirect Australian real property interest. This is an interest in an entity, including a foreign entity, where:
- you and your associates hold 10% or more of it
- the value of your interest is principally attributable to Australian real property.
If you already own Australian property before you go overseas, it will continue to be subject to capital gains tax when you go overseas. However, the 50% discount that applies to resident taxpayers who hold property for more than 12 months, no longer applies.
From 8 May 2012, the law was changed to deny the 50% discount to non resident individuals on taxable Australia property.
The mechanism for figuring out how much CGT is applicable to the period while you were resident of Australia and the CGT that applies to the period while you are non resident, is a market valuation.
You will need a market valuation as at the date you cease to be resident of Australia and another market valuation as at the date you once again become resident of Australia.
For more details on what the Tax Office expects in terms of a market valuation, click here.