Double taxation – when the same income is taxed in two jurisdictions – can significantly affect expats’ earning income, owning assets, or running businesses abroad. To mitigate the effects of double taxation, the UK and Australia have entered into a bilateral Double Taxation Agreement (DTA).
This guide explains how the double taxation agreement between the UK and Australia works, what income it covers, and how to determine your tax residency. It also outlines how UK and Australian expats can claim relief to avoid being taxed twice.
What You Will Learn
- How does the double taxation agreement between the UK and Australia work?
- How to determine your tax residency status.
- How different income types are taxed under the treaty.
- How to claim relief to avoid double taxation.
How Does the Double Taxation Agreement Between Australia and the UK Work?
According to UK and Australian regulations, individuals are subject to taxation on their worldwide income in the country where they are considered tax residents, regardless of their current place of residence.
Conversely, both jurisdictions tax non-residents only on the income derived within their respective territories.
In practice, this means that an Australian tax resident who earns income in the UK would be liable for taxation in Australia (as the country of residence) and the UK (as the country where the income was earned).
Expats subject to taxation in both the UK and Australia may reduce their overall tax burden under the provisions of the 2003 Australia–UK Double Taxation Convention.
The agreement establishes which types of income are taxable in which of the two signing countries in cases when an individual has financial or residential ties to both jurisdictions.
The purpose of the UK–Australia double tax treaty is to:
- Prevent taxation on the same income twice.
- Establish guidelines for resolving dual tax claims.
- Facilitate the exchange of tax-related information between Australia and the UK.
- Prevent tax evasion.
What Does the Australia–UK Double Taxation Convention Cover?
The double taxation agreement between the UK and Australia outlines rules to ensure fair taxation in cases where both jurisdictions may impose taxes on an individual’s income. The treaty addresses the following key aspects:
- Types of taxes covered.
- Tax residency rules.
- Taxation of different types of income.
- Taxation in case of dual tax residency.
- Tax credits.
- Limitations of relief.
Types of Taxes Covered
The Convention covers the following types of taxes:
| UK Taxes | Australian Taxes |
|---|---|
|
|
Tax Residency Rules
Your tax residency status dictates your rights and obligations under the UK–Australia DTA.
Residency is determined based on statutory criteria in each jurisdiction. You may be considered a resident in more than one country, but this status is not subject to personal preference.
UK Tax Residency Rules
You need to meet two conditions to be considered a tax resident in the UK:
- Pass one or more of the UK tests.
- Not pass any overseas tests.
These tests are conducted by the UK government as part of the Statutory Residence Test to determine whether your primary residence is in the UK or overseas. The criteria for passing are:
| Category | Automatic Test | Criteria for Passing |
|---|---|---|
| Automatic UK Tests | First test | Spending over 183 days in a single tax year in the UK |
| Second test | Having your only home in the UK for over 91 days in a row and staying in it for at least 30 days in a tax year | |
| Third test | Working full-time in the UK for 365 days, where at least one day is in the tax year for which the residency is being determined. In addition, over 75% of days with more than three working hours were spent working in the UK. | |
| Automatic Overseas Tests | First test | Spending less than 16 days in the UK after being a resident in one or more of the previous tax years |
| Second test | Spending under 46 days in the UK without being a UK resident for the previous three tax years | |
| Third test | Working full-time overseas and spending under 91 days in the UK, with at least 61 of those days not involving any work |
If none of the automatic tests are met, residency may be determined under the sufficient ties test (e.g. family, accommodation, employment, 90-day presence).
Australian Tax Residency Rules
To determine if you are a resident for tax purposes in Australia, you may take one of the following tests:
- Resides test.
- Domicile test.
- 183-day test.
- The Commonwealth Superannuation test.
The resides test is the primary test, and the other three are only applicable if you don’t meet the criteria for the first one. The Australian Taxation Office (ATO) determines your residency status based on:
- Your physical residency and presence.
- The purpose of residency.
- Employment.
- Personal ties.
- Location and management of your assets.
Taxation of Different Types of Income
The taxation rules under the double taxation agreement between the UK and Australia differ depending on the type of income, according to the following rules:
- Income from real property: It’s taxed in the country where the property is located.
- Profits of a business: They’re taxed in the country where the business is registered. If the business operates in the other country through a permanent establishment, it will be subject to tax there as well, but only on the profits generated within that country.
- Shipping and air transport: These profits are taxed in the country where the business is registered. If there are profits from operations conducted solely in the other country, those profits are taxed in that other country.
- Dividends, interests, and royalties: They’re taxed in the receiver’s country of residence and may also be taxed in the source country, depending on its laws.
- Alienation of property: This income is taxed in the country where the property is located (in most cases).
- Income from employment: It’s taxed in the individual’s country of residence provided they spend less than 183 days in a 12-month period in the other country, their employer is not a resident of the other country, and their salary is not used to reduce the employer’s taxable income in the other country.
- Fringe benefits: They’re taxed in the country with the primary taxing right, which is typically the one that taxes employment income (provided that fringe benefits are paid as ordinary employment income).
- Income of entertainers and sportspersons: It’s taxed in the country where the activities generating the income are performed.
- Pensions and annuities: They’re taxed only in the country of residence.
- Income from government service: Remuneration paid by one country for the government services performed in the other country is taxed only by the country that paid it.
- Student’s income: Payments from one country received for the purpose of education in the other country are exempt from taxes in that other country.
- Other income: Income not specified in the Convention is taxed in the individual’s country of residence regardless of its source.
Taxation in Case of Dual Tax Residency
Since each country determines tax residency according to its own laws, it’s possible that both Australia and the UK consider you a resident for tax purposes. In the case of dual residency, the relevant authorities must agree on which country has the right to impose taxes. The Convention outlines the key factors to be considered in this situation:
- Permanent home: You will be considered a resident of the country where your permanent home is.
- Centre of vital interests: If you have a permanent home in both countries, or if you don’t have one in either, your tax residence will be the jurisdiction where you have closer economic and personal ties (centre of vital interests).
- Nationality: If your centre of vital interests cannot be determined, you’ll be considered a resident of the country of which you are a national.
In case you are a national of both or neither country, the authorities of both countries must come to a mutual agreement on their right to impose taxes on you. Otherwise, you’ll be subject to double taxation.
Tax Credits
A DTA can reduce your tax liability through tax credits in cases where your income is taxable in both countries. The credits function as tax deductions or offsets—the amount of tax you paid in Australia will be deducted from the amount of tax you’re due in the UK on that same income, and vice versa.
Limitations of Relief
Since one or both signing countries may offer tax relief, the Convention also prescribes relief limitations to prevent double non-taxation. Your income is relieved or exempted from taxes in one country only up to the amount that was taxed in the other.
Get Your Free UK–Australia Double Taxation Review
In just 15 minutes with Titan Wealth International’s cross-border tax specialists, you will:
- Understand how the UK–Australia tax treaty applies to your income and pension streams.
- Identify your tax residency status and avoid being taxed twice.
- Discover ways to optimise your global tax position across both jurisdictions.
How To Claim Tax Relief Under the UK–Australia Double Taxation Agreement?
To claim tax relief under the UK–Australia DTA, you must apply for it in the source country, as it’s not automatically administered.
If you want to be exempt from UK taxes, you should fill out Form DT-Individual and send it to His Majesty’s Revenue and Customs (HMRC), along with proof of your Australian residency, which you can request from the Australian Taxation Office (ATO).
To apply for relief from Australian taxes, contact ATO to establish your eligibility for foreign income tax offset (FITO). After you receive a certificate of residency from HMRC to prove you’re a UK resident, submit it with the FITO forms to ATO.
This process ensures that you are not taxed twice on the same income and helps you comply with your tax obligations in both jurisdictions.
Key Takeaway
This guide has outlined the core provisions of the double taxation agreement between the UK and Australia, detailing how various income types are taxed and how residency is determined. We have also explained the steps involved in claiming tax relief to avoid double taxation.
If you require tailored guidance on how the UK-Australia DTA applies to your individual circumstances, it is advisable to consult a qualified financial adviser.
At Titan Wealth International, our cross-border tax specialists can assist with determining your tax residency status, preparing compliant expat tax returns, and structuring your finances to mitigate double taxation exposure.
