Australians who work overseas for an extended period of time should be wary of the tax implications that can arise from taking up such offshore opportunities.
The tax residency status of an Australian who move overseas for employment plays a key role in determining how much tax that person is required to pay in Australia.
Individuals who are “residents” of Australia for Australian tax purposes are taxed on both their Australian sourced and worldwide income. Individuals who are classified as “non-residents” are taxed only on their Australian-sourced income. Non-residential individuals are also ineligible for the $18,200 tax-free threshold, and therefore, all of their assessable income is taxed from the very first dollar.
Foreign employment income is any income that an individual receives from working outside Australia. It includes any salary, wages, commissions, bonuses or allowances. For Australian tax residents, this foreign employment income is taxable in Australia and must be included in an Australian tax return.
However, individuals who pay tax on that employment income overseas can claim the foreign tax as ‘credit’ against their Australian tax obligations. To make this claim, an individual must pay (or be believed to have paid) the foreign income tax, and the foreign income tax must be included in their assessable income for Australian income tax purposes.
Non-residents only need to submit an income tax return if they receive Australian-sourced income. However, there is no need to lodge a return if the only Australian-source income received is interest, dividends or royalties that have had the correct amount of non-resident withholding tax deducted and remitted.