Moving to Australia - Your guide to the personal, tax and migration considerations
Anyone who is not an Australian citizen will require some form of a visa to migrate to Australia. There are approximately 70 different visa types, each with their own requirements and conditions. As an added complication, the rules that underpin these visas undergo regular change (generally once every 6-12 months).
Australian visas are subject to political considerations. This needs to be considered in tandem with the individual’s background for the appropriate and quickest pathway to secure a visa. Depending on the political environment, preference will be given to work, investor or high net worth visas.
Some visas are quicker to process than others and so we need to consider what the planning environment is when submitting an application.
We have experience assisting international clients who require a visa in Australia. This includes high net worth individuals looking to secure a visa or companies looking to send its employees to Australia.
If a business is subject to audit by regulators, we have the experience and track record to deal with the issue. We are able to work with our clients to generate solutions to prevent a repeat of breach incidents.
Tax residency
The application of Australian income tax laws depends on whether an individual is an ‘Australian resident’ for income tax purposes. This is distinct to an individual’s citizenship status or nationality. An individual may be an Australian citizen, but not a tax resident (and vice versa).
An individual will be an Australian tax resident if they meet any one of the following tests:
- they are a resident according to ‘ordinary concepts’, determined by reference to a range of relevant factors (the primary test of residency);
- their ‘domicile’ is in Australia, unless the Commissioner is satisfied that their ‘permanent place of abode’ is outside Australia; or
- they are in Australia for at least 183 days in an income year, unless the Commissioner is satisfied that their ‘usual place of abode’ is outside Australia and they do not intend to take up residence in Australia.
The Australian Government is currently undergoing a consultation process to reform Australia’s tax residency rules for individuals, so these tests may soon be subject to change.
Additionally, Australia’s income tax laws apply differently to ‘temporary residents’, which are Australian tax residents in Australia on temporary visas. This includes an exemption from tax for certain forms of offshore income.
Separate rules apply for determining the tax residency of companies and trusts, which will be influenced by the tax residency of the individuals who own and control them. If an individual plans to relocate between countries, it is crucial that they consider the impacts on their companies and trusts.
Australia’s international tax treaties may also vary the operation of its domestic laws.
Tax registrations and lodgements
Australia’s standard taxation period, known as an ‘income year’ or ‘financial year’, spans 12 months, beginning on 1 July and ending on 30 June. Every year an Australian tax resident is required to prepare and lodge an Australian income tax return, quoting an Australian tax file number (which must be applied for).
Additionally, entities carrying on a business may be required to apply for an Australian Business Number and register for (and collect) goods and services tax, which is Australia’s ‘value added’ consumption tax. If the entity engages employees or certain contractors, additional layers of compliance will apply.
Taxation of income
Australian tax residents are taxed on all of their worldwide income, regardless of its source. This includes employment earnings, trust distributions, company dividends and profits realised on the disposal of capital assets under the capital gains tax (CGT) rules.
Income tax is levied on an entity’s taxable income, which is their gross assessable income minus any allowable deductions. The tax rates and the method of taxation vary according to whether they are an individual, company, trust or other type of entity. Specific taxing rules apply to different forms of income and various concessions may be available, particularly for profits from capital assets taxed under Australia’s CGT rules.
Entity type | Overview of taxation rules |
|---|---|
| Individuals | Individuals are assessed for income tax at progressive marginal tax rates on an individual’s taxable income. The tax rates that apply to Australian tax residents (which include a tax-free threshold) are more favourable than those for non-Australian tax residents. Australian tax residents are also subject to the Medicare Levy, calculated as 2% of their taxable income. An additional Medicare Levy surcharge also applies to high income earners without sufficient private patient hospital insurance cover. |
| Companies | Companies are assessed for income tax at a flat corporate tax rate of 25% or 30%. The applicable rate is determined by the company’s annual revenue and the nature of the income it derives each year. Companies have no tax-free threshold, and are not subject to the Medicare Levy. Shareholders (and certain associates) of companies are taxed on the payment of company dividends, or the provision of other benefits (including certain loans) to them by private companies. Australia’s ‘imputation’ system gives shareholders a credit for corporate tax paid by the company on amounts distributed to them if certain conditions are met. |
| Trusts | While a trust is not a legal person, it is generally required to file a tax return and, in certain circumstances, the trustee (in its capacity as such) may be liable to pay tax on the trust income. The net income of a trust for each income year is taxed to either the trustee or the trust’s beneficiaries, according to the legal entitlements of the beneficiaries at the end of the income year. This is determined by the terms of the trust deed and the actions of the trustee and beneficiaries in each income year. A trust’s income is in most cases taxed on a ‘flow-through’ basis, meaning the income derived by the trust retains its character when taxed to the beneficiaries. This means that Australian resident beneficiaries:
Subject to the terms of the relevant trust deed, income from particular sources (specifically, capital gains and franked dividend income) may be specifically allocated or ‘streamed’ between different beneficiaries in varying proportions. The rules vary for non-residents and minor beneficiaries. |
If tax is paid in both Australia and a foreign jurisdiction on the same amount of income, a taxpayer is generally entitled to a credit in one or both jurisdictions to eliminate any double taxation. However, this is subject to the specific terms of the domestic tax rules of each country and any tax treaty that exists between them.
Offshore income and ‘legacy’ structures
Many individuals who relocate to Australia maintain investments and business or holding structures in overseas jurisdictions. This gives rise to immediate and ongoing considerations.
One key consideration for migrants is whether to maintain companies and trusts in overseas jurisdictions, and whether the ownership, control or governance arrangements of these entities need to change prior to a planned relocation. The tax residency rules for companies and trusts are complex and caution should be exercised where an individual is a director or shareholder of an offshore company, a trustee of an offshore trust, or otherwise exercises a substantial degree of control or decision-making power over such structures (either formally or informally). If this is not properly considered and addressed prior to the relocation of a key individual to Australia, a change of tax residency for those entities may be triggered, bringing them into the Australian tax system.
On an ongoing basis, shareholders and beneficiaries of offshore companies and trusts may be taxed on any profits (and certain assets or benefits) that are provided to them, regardless of whether the funds or assets are repatriated to Australia. It is important that one’s affairs are structured appropriately to address this prior to any planned relocation. These rules should be considered in detail any time an offshore company or trust intends to distribute profits or assets, or provide some other benefit, to an Australian resident.
Where an individual maintains offshore companies or trusts, Australia’s ‘controlled foreign companies’ and ‘transferor trusts’ rules may also operate to attribute the income of those entities to Australian resident taxpayers on an ‘accruals’ basis (ie as the income is generated, rather than as it is distributed), irrespective of whether the funds are actually made available to those taxpayers. Complicated rules apply to calculate the amount that is required to be assessed to the Australian resident taxpayer, and these rules do not apply equally to offshore trusts and companies in all jurisdictions, as the rules are designed to specifically target income that has been accumulated in low or ‘zero’ tax jurisdictions.
International succession planning
An individual's domicile position, the nature and location of their assets and the residency of their beneficiaries are all relevant considerations to succession planning.
If the individual owns assets in different countries, it is important to consider whether to have Wills and the equivalent of enduring powers of attorney in each country they hold assets. These Wills must be carefully drafted so that one does not inadvertently revoke the other.
Although an Australian Will may be recognised in some other countries, it is important to ensure their Wills work best from a local tax planning perspective and to ensure the efficient administration of their estate in each country.
An individual's Will is the essential part of their succession planning, as it sets out how the assets will be distributed on their death.
Testamentary trusts
Many people use testamentary trusts to distribute their residuary estate. A testamentary trust is similar to a family discretionary trust, but it does not come into operation until your death. Testamentary trusts provide many benefits including:
- asset protection from creditors (as the assets are held by the trustee for the beneficiaries of the trust);
- some protection in family law disputes (depending on the circumstances);
- taxation benefits, including the ability to make distributions to a wide range of beneficiaries (determined by the trustee) allowing for tax effective distributions; and
- there are also concessions for children under 18 years, which allow around $18,200 per year (excluding available offsets) (as at 1 July 2024) to be distributed to each child tax free.
Residuary estate | |
|---|---|
| 50% | 50% |
CHILD 1 Testamentary Trust | CHILD 2 Testamentary Trust |
Testamentary trust for Child 1 as primary beneficiary. Child 1 is trustee and appointer. | Testamentary trust for Child 2 as primary beneficiary. Child 2 is trustee and appointer. |
Powers of attorney
Powers of attorney and appointments of enduring guardians (depending on the state/territory in which you are domiciled) are documents that allow you to appoint people to make financial and legal decisions, and also medical treatment decisions, for you if you are unable to make those decisions.
You can appoint attorneys/guardians and alternative attorneys/guardians (who act when the attorneys/guardians cannot act).
These documents will not be recognised in other countries. You should consider having the equivalent of an enduring power of attorney in each country in which you hold assets.
Discretionary or family trusts in Australia
Discretionary or family trusts continue to operate despite your death.
Assets held in a trust are not distributed under your Will and remain with the trust. This may be useful where the trust holds assets in different jurisdictions including Australia, as it can avoid the need to obtain a grant of probate and deal with estate administration in different jurisdictions.
You can deal with the succession of control of a trust as part of your succession planning.
The positions of control in a trust are:
- the trustee – who decides what investments are made and how trust funds are distributed (the trustee can be an individual, or a corporate trustee);
- the appointor (or guardian) – who can appoint and remove the trustee and has ultimate control over the trust.
Documents can be prepared dealing with the succession of these positions.
If you would like specific information relating to:
- UK inheritance tax exposure and strategies that work from both an Australian and UK perspective, you can read our article.
- US estate and gift tax exposure and strategies that work from both an Australian and US perspective, you can read our article.
