How Australian Expats Handle Taxes Abroad in 2026: Foreign Income and Residency Rules

Leaving Australia does not automatically make you a non-resident for tax purposes, and that single misunderstanding is behind most of the nasty ATO letters expats receive two years into their move. The ATO applies four separate tests, and you only need to fail all of them to become a genuine non-resident.

The four tests, and why "resides" beats intent

The primary resides test asks whether Australia is still your ordinary home, weighing physical presence, family location, employment, property, and social ties — no single factor decides it. Fail that, and the domicile test kicks in: the ATO presumes you remain a resident unless you can show your permanent place of abode is now overseas, which typically means a lease or property of 12 months or longer, relocated family, and evidence you've actually set up life abroad (local bank account, registration, the works) rather than parked yourself in serviced apartments. The 183-day test counts physical days in Australia in a financial year (1 July–30 June), counting both arrival and departure days as full days — but it only applies if your usual place of abode isn't already established overseas. A fourth test, for Commonwealth government employees contributing to the PSS or CSS super schemes, automatically keeps those postings and their families as residents regardless of the other three. Most expats who get caught out fail the domicile test: they left with a one-way ticket and a six-month sublet, which the ATO reads as "still ordinarily resident here," not "moved."

CGT event I1: the departure tax most people never hear about

If you do successfully become a non-resident, the ATO treats it as CGT event I1 — you are deemed to have disposed of most of your CGT assets at market value on the day residency ceased, except taxable Australian property (Australian real estate and business assets), which keeps its normal cost base instead. That means shares, non-Australian property, and other investment assets can trigger a taxable capital gain the moment you become a non-resident, even though you haven't actually sold anything. You can elect to defer this — disregarding the gain until you actually dispose of the asset or resume residency — but electing deferral converts those assets into "taxable Australian property" for CGT purposes in the meantime, which has its own downstream consequences. This is a decision worth making with an accountant before departure, not discovering during next year's return.

Non-resident tax rates have no tax-free threshold

Once you are a genuine non-resident, Australian-sourced income is taxed from the first dollar — there is no tax-free threshold. Current foreign-resident brackets run 30% on income up to $135,000, 37% ($40,500 plus 37c per dollar) from $135,001 to $190,000, and 45% ($60,850 plus 45c per dollar) above $190,000. Non-residents are exempt from the Medicare levy and the Medicare Levy Surcharge, which residents pay on top of income tax, but the trade-off of losing the tax-free threshold usually outweighs that saving unless your Australian-sourced income is minimal. Note these bracket figures are periodically re-indexed by the government, so confirm the current-year thresholds on the ATO site before filing rather than relying on last year's numbers.

HECS-HELP does not stay behind

If you have a HECS-HELP or other study/training loan and you're overseas for 183 days or more in any 12-month period, you're required to either lodge your worldwide income with the ATO or submit a non-lodgment advice if your income is at or below roughly $16,750 (25% of the minimum repayment threshold for the 2025–26 year). Above that, you calculate a compulsory repayment the same way you would in Australia, based on worldwide income converted to AUD, with lodgment due by 31 October each year (later if lodging through a registered agent). This rule has caught out a lot of expats who assumed the debt simply sat dormant while they were abroad — it doesn't, and penalties accrue for non-lodgment just as they would onshore.

Superannuation keeps compounding, but contributions get trickier

Moving abroad doesn't touch your existing superannuation balance, but making further concessional contributions from foreign employment income gets more complicated once you're a non-resident, and some countries' pension systems don't recognize Australian super the way Australia recognizes theirs for tax-treaty purposes — meaning double-taxation exposure is a real risk without a treaty check. If you're heading somewhere without a tax treaty with Australia, get that confirmed before you assume your super and any new retirement contributions abroad will play nicely together.

Continue with these closely related guides:

Best Countries with Low Taxes for Expats in 2026 — Overlapping theme (tax).
How Canadian Expats Handle Taxes Abroad in 2026: Deemed Residency and Departure Tax — Overlapping theme (tax).
How to Handle Taxes as a Digital Nomad in 2026: The Complete Guide — Overlapping theme (tax).
How to Move to Lisbon as an American: Taxes, Banking, and Practical 2026 Guide — Overlapping theme (tax).

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