Living overseas in retirement: Australian tax residency considerations

For Australian retirees considering relocation overseas — to live near adult children who have moved abroad, for lifestyle reasons, for healthcare access, for relationships, or for cost-of-living considerations — one of the most consequential financial issues is Australian tax residency. Tax residency determines how Australian income is taxed, whether worldwide income is subject to Australian tax, what happens to certain CGT assets when the move occurs, and the treatment of super pensions drawn from Australia. The framework is principles-based rather than numerical, requiring fact-specific assessment of each retiree's situation. The tax residency question is distinct from Centrelink Age Pension portability (covered in separate articles), though the two interact. For retirees considering overseas plans, the tax residency question deserves explicit consideration well before any move — and specialist tax advice in both jurisdictions is essential.

The Australian tax residency tests for individuals are set by the Income Tax Assessment Act 1936, and apply in priority order. The "resides" test is the primary test — whether the individual "resides" in Australia in the ordinary sense of the word, considering physical presence, family and social ties, accommodation arrangements, employment, and intentions. For retirees, the resides test focuses on where they actually live and have their primary connections. The domicile test treats as resident a person whose Australian domicile means Australia is their permanent home, unless their permanent place of abode is outside Australia. For retirees who maintain Australia as their domicile but spend extended time overseas, this test is critical. The 183-day test treats as resident a person physically present in Australia for more than 183 days in an income year, unless their usual place of abode is outside Australia and they have no intention of taking up residence here. The Commonwealth superannuation test automatically treats certain Commonwealth super scheme members as residents.

For retirees specifically, the resides and domicile tests typically dominate. The framework is principles-based and fact-specific — there is no clear numerical rule that determines residency for someone living partly in Australia and partly overseas. Each case is assessed on its specific facts. Recent proposals to modernise the tests with clearer numerical rules (a "primary test" of 183+ days plus a "secondary test" for borderline cases) have been considered over multiple years but have not yet been enacted. The older principles-based tests remain in force as of the date of writing.

If a retiree is determined to be a non-resident for Australian tax purposes, several specific implications follow. Australian-source income only is subject to Australian tax — Australian wages, business income, rental income from Australian property, certain royalties and dividends. Foreign-source income is not assessable in Australia (though may be taxable in the country of residence). Higher tax rates with no tax-free threshold apply — non-residents face higher rates from the first dollar, typically starting at around 32.5%. This can produce higher tax than resident treatment for low-to-moderate-income earners. Limited or no tax offsets — SAPTO, low-income tax offset, and most other offsets generally not available to non-residents. No Medicare levy — non-residents are generally not liable, providing a 2% saving compared with residents.

The most substantial single tax consideration on becoming a non-resident is CGT deemed disposal. When a person becomes a non-resident, certain CGT assets (other than "taxable Australian property" — broadly real estate located in Australia) are treated as disposed of at market value, triggering CGT on accumulated gains. For retirees with substantial non-real-estate investment portfolios — direct shares in Australian companies, managed funds, ETFs, business interests — the deemed disposal can produce a substantial CGT event in the year of departure. An election is available to disregard the deemed disposal, in which case the asset is treated as taxable Australian property regardless of its actual nature; this defers CGT until actual disposal but commits to eventual Australian CGT on the eventual sale even though the taxpayer is non-resident at that time. The decision between accepting the deemed disposal (paying CGT on departure) and electing to disregard (deferring) depends on specific circumstances and intentions.

A specific consideration for retirees is the treatment of Australian super pensions when the retiree is non-resident. The tax-free treatment of pension payments for members aged 60 and over is a feature of the super tax framework, not the personal tax framework. So a non-resident retiree drawing a tax-free pension from their Australian super continues to receive it tax-free in Australia. However, the country of residence may tax the pension as foreign-source income. Most countries tax their residents on worldwide income, including foreign pension income. Tax treaties between Australia and the country of residence may modify the treatment, sometimes allocating taxing rights to one country and providing relief in the other. The specific treaty position varies by country — Australia has tax treaties with most major partner countries (UK, US, Canada, NZ, much of Europe and Asia) but the specific allocation of pension taxing rights varies.

For most retirees relocating overseas, the practical approach is to keep Australian super in Australia, drawing pension income that remains tax-free in Australia, with the country of residence applying its own treatment subject to any treaty. Some countries provide concessional treatment of foreign pension income; others tax it at standard rates. Specialist advice in the country of residence is essential to understand the specific position.

For retirees considering or already living overseas, several practical considerations apply. Get specialist advice early. Tax residency is fact-specific and consequential; specialist tax advice — accountants familiar with both Australian and target-country rules — is essential. Document the residency position. Records of physical presence, family and social ties, accommodation arrangements, financial connections all support the residency assessment. Understand the country of residence's rules. The other country's tax rules apply alongside Australia's; tax treaties modify the interaction. Plan the transition deliberately. Becoming non-resident has substantial CGT and other tax consequences; planning the timing and structure can substantially affect the outcome. Maintain documentation. Year by year, records support continuing residency assessments. Coordinate with broader retirement planning. Tax position affects net retirement income; decisions in one country affect the other.

A few common pitfalls. Assuming brief overseas visits change residency — they generally don't; brief travel, short stays, holidays don't typically change residency. Assuming long stays automatically change residency — they might, but the principles-based tests look at the broader picture, not just days. Ignoring the deemed CGT disposal on departure — can produce substantial unexpected tax. Not understanding the country-of-residence position — relying on Australian advice alone misses the foreign side. Treating residency as a one-off determination — residency is assessed each year; can change as circumstances change.

For Australian retirees with overseas plans, this is exactly the kind of consequential, technically complex decision where adviser-coordinated specialist input pays for itself many times over. The tax residency question shapes the financial outcome of the move; getting it right is part of getting the move right.