The Double Taxation Agreement – How Australian Expats Can Benefit

foreign income tax offset

A double taxation agreement (also know as a tax treaty or DTA) is an agreement between two countries that seeks to avoid or mitigate the double taxation of personal and business income.  Australia has signed a double taxation agreement with more than 40 countries, so what does it all mean for Australian expats.

What is double taxation?

Double taxation is the taxation of the same income by two or more countries.

For example, as an Australian expat, double taxation might occur if you were to be considered a tax resident of two countries (eg. Australia and the country you are living in).  Double taxation would occur if you were to be taxed on your income once in the country where you were living / working, and secondly be taxed on that same income in Australia.

The impacts of double taxation are often mitigated in Australia through either

In this article we will focus on the double taxation agreement.

What is the purpose of a Double Taxation Agreement?

According to the ATO, a double taxation agreement (also known as a tax treaty or DTA) is a bilateral agreement between two countries that generally aims to :

  • reduce or eliminate double taxation of income caused by overlapping tax jurisdictions
  • provide a level of security about the tax rules that will apply to particular international transactions by
    • allocating taxing rights between the countries over different categories of income
    • providing rules to resolve dual claims in relation to the residential status of a taxpayer and the source of income
    • providing an avenue to present a case for determination by the relevant taxation authorities where a taxpayer considers there has been taxation treatment contrary to the terms of a tax treaty.

tax implications with overseas investment property

What countries does Australia have a double taxation agreement with?

Australia has signed a double taxation agreement (tax treaty) with over 40 countries.  Here you will find a list of the countries with Australian tax treaties.

How does a double taxation agreement work in practice?

Determining Tax Residency

Most of the double taxation agreements include a “tie-breaker” test.  If under the laws of Australia and the laws of your country of residence, both countries consider you to be a resident for taxation purposes, then the tie-breaker test in a double taxation agreement will provide rules for you to determine which sole country you will be considered to be a resident for taxation purposes.

Identifying Taxing Authority over Specific Income

A double tax agreement will generally identify which country has the right to tax different sources of income :

  • In some instances, the double taxation agreement may allocate sole taxing rights of certain categories of income (eg. rental income, capital gains)
  • In other instances, the double taxation agreement may impose a limited rate of taxation on certain categories of income (eg. withholding tax on dividends and interest income).

The effect of most double tax agreements (for those that are determined to be resident in two countries), is that your investments in Australia are taxed in Australia, and your foreign income is taxed overseas.  However each double tax agreement has its own peculiarities and so its worth reviewing with your accountant or the tax office. 

What is your experience with applying a double taxation agreement? Share in the comments section at the bottom of the page.

Double taxation agreements aren’t the only thing you need to understand when moving abroad. Make sure you understand the tax implications of being an Australian Expat – Download our Special Report Now!
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Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.  The Australian Expat Investor may receive referral commissions from companies referred in this article.

 

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Craig

Craig is an Australian Expat and the founder of The Australian Expat Investor.Craig is passionate about investing, and while Craig cannot give personal financial or tax advice, Craig enjoys sharing investing, tax, and other tips for Australian expats to help them to build their wealth while living abroad and get the most out of their time living overseas.Get his free ebook on 9 Financial Surprises That Could Cost Australian Expats Thousands of Dollars at the link above.
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