information for global expats

Tax Treaty Considerations for Expats in Australia

Submitted: April 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Australia, and intend bring money earned from them into Australia during your stay. They also apply if you build up some investments in Australia during your stay, and intend to leave them here after you have left Australia. Australia has the wide network of tax treaties in force with over 40 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in Australia; only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

The withholding tax rate in Australia on dividends sent to a country without a tax treaty is 30%; if sent to a country with a tax treaty they are generally reduced to 15%.

The withholding tax rate in Australia on interest sent to a country without a tax treaty is 10%; this is generally the same if sent to a country with a tax treaty.

The withholding tax rate in Australia on royalties sent to a country without a tax treaty is 30%; if sent to a country with a tax treaty they are generally reduced to 10%.

For the complete rules and rates it is necessary to read the treaty itself. A link to each Australian treaty in force can be found here in a table here.

Prior to arriving in Australia you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Australian country to another to reduce the tax rate paid.

If your home country has a generally lower rate of tax than Australia, you may be able to use the residency definitions in the treaty to show that you are still a tax-resident in your home country. By doing this you may avoid paying some Australian tax on overseas income from work outside Australia and non-Australian dividends, interest, royalties and capital gains.

If your home country has a generally higher rate of tax than Australia, you may benefit by becoming tax-resident in Australia as early as possible. At the end of your stay in Australia you can also rearrange your affairs to ensure that any on-going income from Australian employment or investments is also taxed at the lowest rate possible in the future.



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