Leaving Australia Permanently: A Guide for Australians on Tax Obligations and Residency

If you’re an Australian citizen leaving the country permanently, one of the most significant changes is to your tax liability. Residents are taxed on their worldwide income, but non-residents are taxed only on the income sourced in Australia. Which liability applies to you depends on your tax residency status.

In this article, we’ll examine how leaving Australia affects your tax obligations in the country. We’ll explore the criteria for tax residency in Australia, the process of submitting your final tax return, and the tax events and consequences triggered by your permanent departure from the country. 

When Do You Stop Being an Australian Tax Resident?

Your Australian tax residency is determined by the ties you maintain to the country, the duration of your stay, and your domicile status in Australia. 

The Australian Taxation Office (ATO) applies four tests to examine your individual circumstances and determine whether you meet the criteria for Australian tax residence. If you don’t satisfy any of the tests, you stop being an Australian resident for tax purposes. 

The four tax residency tests are:

1. The resides test
2. The domicile test
3. The 183-day test
4. The superannuation test

The Resides Test

The resides test is the main test for determining your tax residence status. It’s used to evaluate whether you ordinarily reside in the country by examining your: 

• Physical presence in the country: Whether you spend time in Australia routinely, habitually, and with continuity 
• Location of your assets: Whether you maintain a dwelling and have personal use assets in the country
• Family, business, and employment ties: Whether your family resides in Australia, and whether you’re keeping a business in the country or employment with an Australian employer
• Social and living arrangements: Whether you continue social activity in Australia after leaving

When using this test, the ATO takes into account all the relevant factors, i.e., it doesn’t focus on a single indicator to decide your tax residency status. If you don’t satisfy this test, your situation will be assessed against the other three tests.

The Domicile Test

The domicile test aims to establish where your legally permanent home is. A domicile can be established by: 

• Origin: Assigned at birth, typically inherited from parents
• Choice: Made after changing the place of residence and expressing the intention to stay there permanently or indefinitely 
• Law: Imposed by law, such as when a child’s domicile changes along with their parents’ 

The domicile test is typically used to establish tax residence when leaving Australia. Even if your domicile stays Australian, you are not a resident under this test if you satisfy the ATO that your permanent place of abode is outside Australia. In practice, that means establishing a permanent place of abode in your new country and discontinuing strong connections with Australia, such as a holiday home, a car, or bank accounts.

The 183–Day Test

The 183-day test determines your tax residency based on the amount of time you spend in Australia during a single income year. 

Under the test, you will be considered a tax resident if you spend more than half of the year in the country, continuously or intermittently, unless both of the following apply to you: 

• Your usual place of abode is outside Australia
• You don’t want to take up residence in Australia

The Superannuation Test

The superannuation test typically applies to government employees. Under the test, you’ll be considered an Australian tax resident regardless of where you live if you are a contributing member of either of the following two superannuation schemes: 

1. The Public Sector Superannuation Scheme (PSS)
2. The Commonwealth Superannuation Scheme (CSS)

The test doesn’t apply to members of the Public Sector Superannuation Accumulation Plan (PSSAP). 

Lodging Your Final Tax Return

In the year of your permanent departure from Australia, your tax return should be effectively split into resident and non-resident periods. Each period is subject to different tax rules, as shown in the following table: 

Tax Factor	Resident Period	Non-Resident Period
Income to declare	Worldwide	Australia-sourced
Applicable tax rates	Resident (16%–45%)	Non-resident (30%–45%)
Tax-free threshold	Partial	None
Medicare levy exemption	No	Yes

When you stop being a tax resident, the tax-free threshold that applies to your income while you were a resident is typically lower than the usual AUD 18,200. It’s calculated using the following formula: 

• AUD 13,464 plus (AUD 4,736 divided by 12 and multiplied by the number of months you were a resident)

The final month of your tax residency in Australia is included in the calculation. 

You might be required to report your worldwide income for the non-resident portion of your final tax return if you have debt under one of the following programmes: 

• Higher Education Loan Program (HELP)
• Australian Apprenticeship Support Loan (AASL)
• Vocational Education and Training (VET) Student Loan

If your worldwide income is at or below AUD 16,750, you need to lodge a non-lodgement advice form instead. 

Can You Lodge an Early Tax Return When Leaving Australia Permanently?

You might be able to lodge an early tax return when leaving Australia permanently if you’re departing before the income year ends. To do so, you need to meet the following criteria: 

• You intend to become a non-resident of Australia for tax purposes
• You will not derive any further income in Australia (except from interest, dividends, and royalties)
• You don’t have any debt under the HELP, the AASL, or the VET Student Loan programmes

An early tax return can be submitted only in paper form, with an expected processing time of 50 business days. 

CGT Event I1: Capital Gains Tax When Leaving Australia

When you cease to be an Australian tax resident, a specific capital gains tax event, CGT event I1, is triggered. Under this event, you are treated as if you disposed of certain assets at their market value on the day your residence ended, creating a capital gains tax liability even though you haven’t actually sold the assets or realised any gains. 

This event applies differently to assets involved: 

• CGT assets, such as shares, crypto, and most other investments, are subject to a capital gains tax under the event, and cease to be subject to Australian tax from then on
• Taxable Australian property (TAP), such as real estate, indirect interest in real estate, or assets used for business, is not taxed when the event is triggered, and will be taxed when you sell it

If you have assets that are subject to capital gains tax under event I1, you can choose not to accept their deemed disposal. Instead, you can treat them as taxable Australian property and defer the tax liability until you dispose of them. You can notify the Australian Taxation Office of your preferred treatment in the final tax return. 

While this strategy can reduce your tax bill in the year you stop being a tax resident, it will bring any subsequent asset gains under Australian tax jurisdiction. 

Australian Property Tax Treatment After Leaving Australia

Even though your property in Australia isn’t subject to capital gains tax under event I1, the cessation of your non-resident status will trigger significant tax changes. These changes mainly relate to: 

1. The main residence exemption
2. Foreign resident capital gains withholding

The Main Residence Exemption

Australian tax residents are exempt from paying capital gains tax when selling a qualifying main residence. As a non-resident, you cannot claim this exemption, the partial exemption, or ‘the home first used to produce income’ rule unless you pass the life events test.

To satisfy the test, you must have been a foreign resident for six years at most, and have had one of the following things happen to you during that time: 

• You, your spouse, or a minor child had a terminal medical condition
• Your spouse or minor child died
• The CGT event happened as part of a formal agreement following the breakdown of your marriage or relationship 

Foreign Resident Capital Gains Withholding

If you sell real property in Australia as a foreign resident, the buyer is required to withhold a portion of the sale price and send it to the Australian Taxation Office. If you sold the property to a close person, such as a relative, they will be required to consult a professional valuer to determine its market value. 

Currently, the FRCGW rate is 15%. In the past, the tax applied only to property above a certain value. However, since 2024, it applies to the full value of any property sold. 

You will be able to have the amount credited back to you in full if you don’t have any tax debts or the sale of the property hasn’t resulted in a capital gains tax liability. To claim the credit, you will need to lodge a tax return for the year when the transaction occurred, even if there is no income to report for that year.

Ongoing Tax and Financial Affairs 

Once your Australian tax residency ends, several aspects of your financial affairs continue to be governed by Australian rules. These rules are sometimes different from rules for tax residents, especially when they concern: 

1. Australia-derived income 
2. Superannuation
3. Companies and trusts

Australia-Derived Income

You are required to continue lodging tax returns for your Australia-derived income after you cease tax residence. Any interest, unfranked dividends, or royalties you continue accruing in Australia will become subject to withholding tax at the following rates: 

Type of Income	Withholding Tax Rate
Interest	10%
Unfranked dividends	30%
Royalties	30%

You are not required to report these three types of income on your tax return if the payer is withholding tax on them. You should, however, update your address with every payer to notify them of your status change.

Your new country of residence might require you to pay taxes on your worldwide income, including income you derive in Australia. If that is the case, the existence of an income tax treaty between the country and Australia can help you avoid double taxation on the same income or reduce the tax rate. 

For example, interest income might become exempt from withholding tax in certain circumstances if you move to a tax-treaty country. Unfranked dividends might be taxed at a reduced rate of 15%, while royalties might be taxed at 10% in Australia.

It’s important to note that you will still need to report your worldwide income on your tax returns if you have a study or training support loan you need to repay. 

Superannuation

As an Australian citizen, you are not entitled to a departing Australia superannuation payment (DASP) when leaving Australia permanently. DASP is only available to temporary residents, while citizens and permanent residents remain subject to the same rules for superannuation release. 

Leaving Australia permanently might affect the status of a self-managed super fund (SMSF) that you’re a member of or manage. The fund is subject to a residency test, which requires the fund to meet the following three Australian location criteria: 

1. Place of establishment or assets held
2. Central management and control
3. Active members

If the fund fails the test, it can become non-compliant and trigger consequences such as the loss of the concessional tax rate of 15% and application of the highest marginal tax rate of 45% on the fund’s assessable income. 

To avoid non-compliance and continue contributing to the fund, you should consider doing so via a retail or industry fund and rolling over contributions to your SMSF if you return to Australia. Alternatively, you can roll over the contributions to a regulated super fund and wind down your SMSF. 

Companies and Trusts

A company that operates in Australia but was incorporated abroad can only remain a resident if its central management and control personnel are located in Australia, or if its shareholders with voting power remain Australian residents. If your company loses its tax resident status, it will be liable for the same 30% corporate income tax rate (or 25% for qualifying companies) on its Australia-derived income. 

If you are the sole trustee of a trust, or if you otherwise control or manage it, your trust will retain its Australian residence in the year you depart the country. In any subsequent year, it will be treated as a non-resident trust for income tax purposes. 

For capital gains tax, the rules remain the same unless the trust is a unit trust. In that case, its tax residence status is determined by satisfying at least one criterion in each of the following two sets of criteria:

1. The trust has property in Australia, or the trustee carried on a business in the country
2. The central management and control of the trust was in Australia, or Australian residents held at least half of the beneficial interest in the trust’s income or property

Why Professional Advice Matters When Leaving Australia

The decisions you make when leaving Australia permanently can have significant consequences. For example, timing the sale of your main residence incorrectly can result in a significant tax liability. The rules are easy to misinterpret without a clear understanding of how they apply to your specific situation. 

But leaving Australia also constitutes one part of the process. The other part, establishing residency in a foreign country, can be just as complicated, if not more so. You are required to navigate an unfamiliar visa and immigration system, understand how the new country will tax your income, and structure your financial affairs correctly on that side, as well. 

Any mistake during the transition can cost you time and valuable resources. Relying on professional assistance can ensure that you go through the process efficiently, without incurring unnecessary costs. For help with leaving Australia and obtaining a residence abroad, contact Nomad Capitalist.

Plan Your Departure From Australia With Nomad Capitalist

Nomad Capitalist is a consultancy company that specialises in global mobility and wealth preservation. More than 1,500 clients have relied on our services to obtain a second residency, legally reduce their tax liabilities, and explore investment opportunities in foreign countries. 

Our Action Plan service integrates our tax and residency expertise to develop an effective strategy for your departure from Australia. When creating an Action Plan, we take into account your current situation and goals to develop a blueprint uniquely suited to you.

Here’s what partnering with Nomad Capitalist on an Action Plan entails:

1. We ask you to fill out a short form to help us determine whether we’re a good match
2. We schedule a 45-minute onboarding call to learn more about your situation and needs
3. Our agents develop an Action Plan and present it to you for approval
4. We implement the Plan over 12 months and manage all the administrative parts
5. You continue receiving support from us even after the Plan is implemented

If your goal is to leave Australia permanently, we can help you choose the most tax-friendly jurisdiction as your destination. We can also assist throughout the residency process and provide support for acquiring a second citizenship. To get started, contact Nomad Capitalist now!