Making an election to stay resident vs non-resident for tax if working overseas?

As the world has converted into a global village, people often live and work in a country other than their home country for better living or work opportunities. People come from other countries to work in Australia and vice versa; for their skills and expertise to be well rewarded.

As the sole purpose is to better utilize the opportunities and enhance their personal wealth, it makes a huge difference for an individual to be an Australian resident or non-resident due to different tax treatment for each category.

The Australian Government has rules and business processes to determine whether a person is a resident or non-resident for taxation. Therefore, it is important to consult a tax professional before one finally signs “on the dotted line”.

Australian Tax Office (ATO) has a totally unique view of residency. If you are not correctly informed of what your options are, you could end up making a crucial mistake. There is an ongoing debate on who is more benefitted, residents or non-residents when it comes to the taxation.

The main difference between the two categories is that non-residents, unlike residents, are not eligible for tax-free threshold of an income less than $18200.

Though the tax rate remains the same for residents and non-residents, but the cents-in-the-dollar amounts differ significantly for an income higher than $80,000. Simply put, non-residents have to pay a higher tax for every dollar earned.

The banks interest is taxed at a flat 10% for non-residents, whereas the tax is assessed to residents at a usual rate. Medicare is also different for both parties, non-residents neither have to pay Medicare levy nor they can claim the medical benefits.

Another interesting point is that we are talking about the individuals having dual nationalities or citizenship, so they have their assets in both the countries. Australian residents are at a disadvantage when it comes to the taxable income; unlike non-residents they are taxed on their global income.

However, most countries have reciprocal agreements with each other, allowing you to work as a migrant worker and not be taxed in the country where you are working as well as in your home country.  Still, there are a few countries that do not have a reciprocal agreement with other countries. In these cases,  there is a risk of being taxed twice; once in the country you live in and once in the country you work in.

Thus, it is evident from the above discussion that making a decision of staying resident or non-resident is of utmost importance and calls for a consultation of a specialist in the global tax field before one can make a final decision of his residency.

Whether residents or non-residents, Australians need to update their information to ATO to avoid any penalty or interest in case of an underpaid tax assessment. For more information, please speak to a financial advisor.


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