How to Pay Less Tax in Australia by Ceasing Australian Tax Residency

Depart Australia and pay no tax

We have spoken to many people who are uncomfortable with the high tax rates in Australia. With the right steps and proper guidance, you may be able to significantly reduce or even eliminate your tax liability. 

In this blog post, based on this video, we will discuss the crucial considerations when ceasing Australian tax residency, explore the concept of Australian-sourced income, delve into non-resident tax rates, and provide strategies to potentially pay less tax or even avoid taxation altogether. Please note that individual circumstances may vary, and it is always advisable to consult with tax professionals, like us (contact us here), to ensure compliance with Australian tax laws. 

Ceasing Australian Tax Residency

Ceasing your Australian tax residency involves two main steps: cutting ties with Australia and establishing a domicile elsewhere. To successfully cut ties, factors such as physical presence, assets, family, business, employment, and social arrangements need to be considered. Establishing a domicile in another jurisdiction requires a long-term intent, appropriate visa, and long-term rental (12 months minimum). The ATO (Australian Taxation Office) typically looks for a long-term intent of two to three years minimum. Additionally, holding an appropriate long-term visa, rather than a tourist visa, is essential in this process. 

Understanding Australian-Sourced Income

Once you have ceased Australian tax residency, you will only be taxed in Australia on Australian-sourced income. However, it is crucial to determine whether your income qualifies as Australian sourced. This determination is based on complex factors such as where services are performed, contract jurisdiction, payment locations, and other relevant aspects. By strategically structuring your business or employment to operate outside Australia, you may be able to classify your income as non-Australian sourced, reducing or eliminating your tax obligations in Australia

Exploring Non-Resident Tax Rates 

As a non-resident for tax purposes, your tax rates may differ from those applicable to Australian residents. Non-resident tax rates are less favourable, and certain tax benefits and concessions, such as the 50% CGT (Capital Gains Tax) discount, may not be available. It is important to understand the impact of these rates on your overall tax liability when considering a move overseas. By optimizing your income sources and considering tax planning strategies, you may still be able to achieve significant tax savings as a non-resident. 

Deemed Disposal and Capital Gains Tax  

Deemed disposal refers to the capital gains tax event that occurs when individuals cease their Australian tax residency. It involves calculating capital gains on assets at their market value at the time of ceasing residency. Non-residents are unable to access the 50% CGT discount, and any disposal of assets while being a non-resident may be subject to non-resident tax rates. It is important to carefully evaluate the implications of deemed disposal and consider the potential tax consequences when deciding whether to elect for this option. 

Strategies to Minimize Taxation 

While everyone’s circumstances are unique, there are strategies that can potentially help minimize tax obligations when ceasing Australian tax residency. These strategies may include establishing and structuring businesses or employment contracts outside Australia, diversifying income sources, and exploring tax treaties between Australia and your new country of residence.  

Ceasing your Australian tax residency and minimising tax obligations can be a complex process, but with careful planning and professional advice, it is possible to significantly reduce or eliminate your tax liability. By understanding the steps involved, considering the classification of your income, exploring non-resident tax rates, and leveraging tax planning strategies, you can take ownership of your financial situation and potentially pay less tax in Australia or even avoid taxation altogether. Remember, it is crucial to consult with tax professionals who can provide personalized guidance based on your circumstances 

Please watch our video to gain a better insight into this. If you want to learn about how, you can utilise this info in your favour, please contact us or book an appointment to chat.  



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Understand your Australian Tax Residency status

Your residency makes a huge difference to how you are taxed in Australia. Getting your tax residency wrong can cost you thousands. Use our free Residency Research Tool.