Implications of Change in Residency

Australian tax residents are taxed on their worldwide income. Upon cessation of tax residency their assets located in Australia remain in the Australian tax system and subject to CGT. Those assets located outside of Australia are deemed disposed of on the date of residency cessation at their market value, and their growth in value will by subject to CGT. To avoid CGT at this point, the taxpayer can (by election), choose for assets located outside Australia to remain in the Australian tax system (and remain subject to Australian CGT despite the taxpayer no longer being an Australian tax resident).

A point to note is that assets held outside of Australia are likely to be subject to tax in country where these assets are sited and so the same asset will be taxed twice. However any tax paid in one country will in most cases be able to be offset against the tax charged in the other country.

Salary and wages earned whilst a non-resident of Australia are outside Australia’s tax jurisdiction.

Whilst non-resident, an Australian may let their main residence. So long as another main residence is not acquired, there can be a period of up to 6 years where the property can be income producing and still be considered a main residence i.e. not subject to CGT. The losses generated by the rental property are carried forward to when the taxpayer returns to Australia, and available for offset against other income.