If you’re an Australian living or working overseas, it’s important to understand how your tax residency status affects your finances. The Australian Government is currently reviewing its tax residency rules, and while these changes are not yet law, they could significantly alter the way Australian expats are taxed, especially about foreign income, investment properties, and ties to Australia.
As the leading mortgage broker for Australian expats, we help you make smart financial decisions. Whether you’re investing in property, planning a return home, or managing income across borders, knowing your tax residency status is key to avoiding costly surprises.
What Is a Tax Residency?
Tax residency refers to whether the Australian Taxation Office (ATO) considers you a “resident for tax purposes.” This classification affects how much tax you pay, what income is taxable, and what tax benefits or concessions you might be eligible for.
If you are a tax resident of Australia, you:
- Must declare and pay tax on all income earned worldwide
- May be eligible for tax concessions (tax-free threshold)
- Are subject to Australian tax laws even while living abroad
If you are classified as a non-resident, you:
- Pay tax only on Australian-sourced income
- Are generally not eligible for most tax offsets or deductions
- May be subject to different rules for capital gains tax, particularly on property
For expats with income or assets across multiple countries, knowing your tax residency status is essential to staying compliant and financially efficient.
Why Tax Residency Matters for Expats?
Your residency status doesn’t just affect tax; it can influence everything from property purchases and borrowing capacity to estate planning and superannuation.
Some common scenarios where tax residency becomes critical for expats include:
- Returning to Australia for frequent or extended visits
- Maintain a home or family ties in Australia
- Holding superannuation accounts or other financial ties
Without a clear understanding of your status, you could unintentionally trigger Australian tax obligations, even if you’ve lived abroad for a long period of time.
If you are a tax resident of Australia, you:
- Must declare and pay tax on all income earned worldwide
- May be eligible for tax concessions (tax-free threshold)
- Are subject to Australian tax laws even while living abroad
If you are classified as a non-resident, you:
- Pay tax only on Australian-sourced income
- Are generally not eligible for most tax offsets or deductions
- May be subject to different rules for capital gains tax, particularly on property
Current Residency Rules (Still in Effect)
As of 2025, the ATO (Australian Taxation Office) uses four key tests to determine whether someone is an Australian resident for tax purposes:
1. Resides Test
You’re considered a resident if Australia remains your primary home, where your family or life is based.
2. Domicile Test
Even if you live abroad, if your legal “domicile” (permanent home) is in Australia, you may still be considered a resident unless you can prove you have established a permanent base overseas.
3. 183-Day Test
If you’re physically present in Australia for 183 days or more during a financial year, you may automatically be treated as a resident. Unless you prove your home is elsewhere, and you don’t intend to stay.
4. Superannuation Test
This test mostly applies to Australian government employees working overseas. If you’re covered by certain superannuation schemes, you’re automatically considered a resident.
Even if you live abroad, strong ties to Australia could keep you classified as a resident for tax purposes.
Proposed Changes
To simplify the system, the government has proposed a new two-step framework for determining tax residency. These changes are not yet law, but they are expected to be introduced soon.
Here’s how the new system would work:
- If you spend more than 183 days in Australia, you will automatically be considered a tax resident, no questions asked.
- If you spend between 45 and 183 days in Australia, you might still be considered a resident, depending on a “factor test” that considers your ties to Australia.
The ATO would assess whether:
- You have a home available in Australia
- Your spouse or children reside in Australia
- You work or operate a business in Australia
- You maintain strong financial connections (bank accounts, property)
If you meet enough of these criteria, you could be deemed a tax resident, even if you consider yourself an expat.
What This Means for Australian Expats
While the proposed rules aim to make residency easier to assess, they could also make it harder for expats to break tax residency. In particular, Australians who travel back frequently or keep a home and family in Australia may find it difficult to prove they are truly non-residents.
These changes could have a direct impact on:
- Taxation of overseas income
- Capital gains on property or shares
- Eligibility for financial products and services
It also raises the stakes for financial planning, especially when investing in property or managing debt while abroad.
Get Clarity on Your Tax Residency and Financial Strategy
Tax residency may seem like a legal technicality, but for expats, it can define your entire financial future. From tax obligations to investment potential, the rules are evolving, and you need to stay ahead.
If you’re unsure how these rules affect your borrowing power or property plans, speak with our expert expat mortgage team today.
