As Australia’s borders re-open, British medical professionals will once again have the opportunity to work down under. But there are tax rules when moving from the UK to Australia to consider.
The rules regarding residency are complicated and require specialised tax advice to understand each individual’s personal circumstances and income tax position here in Australia.
Main ways you may be taxed based on your residency
- Where you are a non-resident of Australia for tax purposes, you will only be taxed by the Australian Taxation Office (ATO) on Australian sourced income, for example, your Australian salary and investment income.
- Where you are considered a resident of Australia for tax purposes, but are a “temporary resident”, you are generally only taxed by the ATO on your Australian sourced income plus any income earned from employment or services income overseas.
- Where you are considered a resident of Australia for tax purpose but not a “temporary resident”, you will be taxed by the ATO on all your income. This includes income earned overseas.
Generally, where you are taxed overseas, you will be entitled to an offset for the foreign tax paid against the Australian tax payable.
Am I a resident of Australia for tax purposes?
This is a key question we frequently get asked. The tests to determine residency are complex. There are several factors to consider, including:
- How long you have been physically present in Australia;
- What your intention or purpose for being in Australia is;
- Whether you have family or business ties in Australia;
- Whether you have assets in Australia, for example, a house, a business etc.;
- What your social and living arrangements are whilst in Australia;
- Where your domicile is considered to be; and
- Whether you are an Australian government employee who is a member of the CSS or PSS schemes (superannuation schemes).
Your responses to these types of questions will assist in determining if you should be treated as an Australian tax resident.
We note that the proposed changes to tax residency in the Liberal party’s 2021-2022 budget, including a “bright-line” test, have now lapsed due to the recent change in government. The new government has indicated that the residency rules may be re-visited.
How do I know if I am a “temporary resident”?
This is another complicated assessment and is impacted by a number of factors, including whether you:
- Hold a temporary visa; and
- Are not considered a resident of Australia under the Social Security Act 1991, or have a spouse who is.
These tests are quite different from the factors outlined above.
How does my Australian tax position change if I am a temporary resident?
If you are classified as a “temporary resident” of Australia, you are:
- Not assessable on foreign source income other than employment income; and
- Not assessable on capital gains unless they arise from Taxable Australian Property.
Temporary residents are not entitled to the Capital Gains Tax (CGT) 50% discount on taxable Australian property acquired after 8 May 2012. However, if you owned an asset that was taxable Australian property prior to this time, and sell it after that date, the 50% discount may be apportioned.
What does this mean for the property I own in the UK?
If you are a non-resident, then there is no tax payable in Australia on your rental income or on any gain on sale of your UK property. The situation is the same if you are an Australian resident that is a “temporary resident”.
However, if you become an Australian resident and are not a “temporary resident”, then on becoming an Australian resident, any assets you hold outside of Australia (assets that are not taxable Australian property) will generally be treated as being acquired at that time for their market value. This is commonly referred to as “deemed acquisition”. This means your UK property comes into consideration for Australian tax purposes. You will be required to declare any income and expenses related to this property on your Australian income tax return.
If you sell that property as an Australian resident, you will be required to pay CGT on that sale. If you cease to be an Australian resident, you may also pay CGT as you will be considered to have disposed of it at market value at the time of ceasing residency. This is commonly referred to as “deemed disposal”.
What if my circumstances change?
Certain changes in your situation may impact your residency status and therefore have tax implications, for example, if you:
- Are granted a permanent visa;
- Become an Australian citizen; or
- Marry or begin to cohabitate with an Australian resident within the meaning of the Social Security Act 1991.
If the above changes occur, then you may no longer be a temporary resident but will still be considered an Australian resident for tax purposes.
Alternatively, if you return to the UK and no longer meet the requirements to be an Australian resident, where you were a “temporary resident”, there should be no adverse tax implications.
However, if you were not a “temporary resident” at the time you ceased to be an Australian tax resident, you will be taken to have disposed of your assets that are not taxable Australian property. This may mean you are required to pay Australian CGT on any gain in value of these assets on ceasing residency.
Determining residency can be extremely complicated. If planning a move from the UK to Australia we strongly recommend you consult a tax specialist when commencing work in Australia to ensure you understand your tax obligations.
If you need help understanding the tax considerations when moving from UK to Australia, or would like to chat about determining residency, please contact Kristy Baxter or Angela Stavropoulos from Pilot’s medical services division at firstname.lastname@example.org or on (07) 3023 1300.