• 26 May 2024
Purchasing Australian Property and the implications of Tax, what you need to know.

Resident vs. Non-Resident Australian Tax – what is the difference?

Australia’s tax system is structured differently for Australian residents and non-residents, and it is important for individuals to understand the distinctions to ensure compliance and optimise their tax obligations especially if you’re interested in buying Australian Property as an Expat or non-resident.

As specialists in expatriate home loans we have a vast network of trusted advisors and if you want specific information to your circumstances you can contact us today for an obligation free consult. We can provide a detailed outline of the key differences in Australian tax treatment between residents and non-residents, including income tax, capital gains tax, and other related considerations. In the meantime, here’s a brief summary to get you started.

The first step in determining the tax treatment you need is establishing residency status for tax purposes. The Australian Taxation Office (ATO) considers various factors, such as the length of stay, intention to reside, and ties to Australia. Generally, an individual is considered an Australian resident for tax purposes if they reside in Australia or have significant ties to the country.

Australian Tax and the different tax rates, what are DTAs and CGT? 

Residents are subject to Australian income tax on their worldwide income. This includes income from employment, business activities, investments, and rental properties. Non-residents, on the other hand, are generally taxed only on their Australian-sourced income, such as employment income earned in Australia or income generated from Australian assets.

The tax rates applicable to residents and non-residents differ. Residents are subject to progressive tax rates, meaning the more income they earn, the higher the tax rate they pay. On the other hand non-residents, are subject to a flat tax rate on their Australian-sourced income, which is generally higher than the tax rates for residents.

Residents are also subject to Capital Gains Tax (CGT) on the disposal of assets, both in Australia and overseas. They are eligible for various exemptions, discounts, and concessions, such as the 50% CGT discount for assets held for more than 12 months. Non-residents are generally only subject to CGT on the disposal of Australian real property or certain taxable Australian assets.

Australia has Double Taxation Agreements (DTAs) with many countries to prevent double taxation. These agreements provide relief to individuals who may be liable for tax in both Australia and their home country. DTAs generally determine the taxing rights for different types of income and provide mechanisms for claiming credits or exemptions.

Other considerations, its not a one size fits all.

Residents are required to pay the Medicare Levy, which helps fund Australia’s public healthcare system. The levy is calculated as a percentage of taxable income. Non-residents are generally not liable for the Medicare Levy, although they may be subject to the Medicare Levy Surcharge if they do not have private health insurance.

Superannuation, or retirement savings, is an important aspect of the Australian tax system. Residents are eligible to contribute to superannuation and enjoy tax benefits such as concessional tax rates on contributions and tax-free withdrawals after preservation age. Non-residents can only contribute to superannuation if they are employed in Australia.

There are additional tax considerations for non-residents, such as the application of withholding taxes on certain types of income, including interest, dividends, and royalties. Non-residents may also be subject to specific tax treaties between Australia and their home country, which could impact their tax liabilities.

Understanding the difference in Australian tax treatment between residents and non-residents is essential for individuals to fulfill their tax obligations and optimise their tax positions. Residents are subject to tax on worldwide income, while non-residents are generally taxed only on Australian-sourced income. Different tax rates, exemptions, and concessions apply to each category. It is advisable to seek professional advice from a tax specialist to ensure compliance and take advantage of concessions that may be available to you.

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