Before You Leave Australia: The Moving Offshore Planning Framework for Australian Business Owners

Introduction

Most Australian business owners planning to move offshore focus on where they are going, the jurisdiction, the tax rate, or the lifestyle. The decisions that determine the outcome, however, are about what gets resolved before departure, as the most expensive offshore moves are almost always sequencing errors, not structural ones.

Making critical tax, business, and personal decisions in the wrong order can undermine the entire move and create significant, avoidable costs. This article provides a pre-departure planning framework, outlining the key decisions that must be resolved before leaving Australia.

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Why Sequencing Matters More Than the Destination

Australian business owners often focus on the destination when moving offshore — the jurisdiction, the tax rate, and the lifestyle. The decisions that truly determine the outcome, however, are about what gets resolved before departure and in what order.

A sequencing error occurs when critical decisions are made in the wrong order. For example, a business owner might:

• pick the right jurisdiction but distribute retained profits after departure;
• fail to access CGT concessions before leaving Australia; or
• set up an offshore structure that contradicts their residency position.

The cost of these errors is the difference between what the offshore move could have achieved and what it actually delivered. Getting the sequence right involves making five key pre-departure decisions, which form the framework for a compliant and effective international structure.

The Residency Exit — What Must Be True Before Departure

The Tests That Determine the Exit

For Australian business owners planning to move offshore, residency for tax purposes does not end simply by boarding a plane. Under section 6(1) of the Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’), your Australian tax residency continues until key tests are met. The two most critical are:

1. resides test; and
2. domicile test.

The resides test examines whether you still reside in Australia in the ordinary sense, looking at the total picture of your life, not just how many days you are in the country. The domicile test applies to business owners who keep their Australian domicile of origin without establishing a permanent home elsewhere. As confirmed in TR 2023/1, the Australian Taxation Office (ATO) reviews surrounding income years, not just the year you leave, to determine if a genuine break has occurred.

This means the conditions for a clean residency exit must be firmly established before you depart, not assembled after the fact. Failing to satisfy these tests means you may remain an Australian tax resident, keeping your worldwide income and assets within the Australian tax system despite being physically outside Australia, a risk that can be managed with strategic residency planning services.

The Family & Property Decisions That Carry the Most Weight

When assessing a residency exit, the Australian Taxation Office and the courts give more weight to decisions about family and property than to time spent offshore. For business owners planning to move overseas, three pre-departure decisions are particularly significant. These decisions must be resolved before leaving Australia if the goal is a clean and defensible residency exit:

1. Family location: Leaving a spouse and children in Australia is one of the strongest indicators of continued residency. Their location is a powerful signal of where your real home remains.
2. The family home: Selling your primary residence or leasing it on commercial, arm’s-length terms carries far more weight than keeping it available for your personal use during return visits. An empty home waiting for you suggests a temporary absence, not a permanent departure.
3. Return visits: The frequency and purpose of trips back to Australia should be deliberately planned before you move. Returns that look like coming home to your established life, rather than visiting for specific business or personal reasons, will undermine your claim of being a non-resident.

The Business & Tax Decisions That Cannot Wait

CGT Concessions & the Division 152 Window

For Australian business owners planning to sell their business, the timing of their departure is critical. Division 152 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’) offers Capital Gains Tax (CGT) concessions that can reduce or eliminate the tax on a business sale — but only if the business owner is an Australian tax resident when they are accessed.

The four main concessions are:

1. The 15-year exemption;
2. The 50% active asset reduction;
3. The retirement exemption, which has a lifetime limit of $500,000; and
4. The small business rollover.

A business owner who moves offshore before accessing these concessions loses the ability to use them. This is a classic sequencing error where failing to act before departure results in a much higher tax bill than necessary. The window to use these concessions closes permanently once you cease to be an Australian resident.

Deemed Disposal & the CGT Event I1 Decision

When an Australian business owner ceases to be a resident for tax purposes, the law treats them as having sold most of their assets, even if no transaction occurs. Under Section 104-160 of the ITAA 1997, CGT Event I1 triggers at the point residency ceases regardless of whether any assets are actually sold. This deemed disposal rule applies to assets that are not Taxable Australian Property (TAP), such as Australian and foreign shares, managed funds, and foreign real estate.

Business owners face a crucial choice at this point. They can elect to disregard the deemed disposal, which treats the assets as TAP and keeps them within Australia’s tax system until they are actually sold. This defers the tax, but the CGT discount is typically reduced for the period of non-residency.

From 1 July 2027, a new indexation regime will replace the CGT discount, adding another layer to this decision for those moving offshore after that date. A narrow exception also exists under Australia-US Double Tax Agreement (‘Australia-US DTA’), where gains on certain shares may be taxed only in the US, but this requires precise planning before departure. This choice is made in the final tax return as an Australian resident and is irreversible.

Retained Profits & the Franking Credit Window

Retained profits held in an Australian company become more difficult and costly to access once a business owner moves offshore. For an Australian resident shareholder, fully franked dividends are tax-efficient because the franking credits can be used as a tax offset.

For a non-resident, however, franking credits only provide an exemption from Dividend Withholding Tax (DWT),  they do not generate a refund or an offset. Any unfranked portion of a dividend paid to a non-resident shareholder attracts DWT, which is generally 30% unless reduced by a DTA. A business owner with substantial retained profits should model the cost of distributing those profits before leaving Australia, as the pre-departure window almost always delivers a better financial outcome.

The Documents That Need to Be Reviewed

SMSFs & the Central Management & Control Requirement

For Australian business owners with a Self-Managed Superannuation Fund (SMSF), departure planning must address the fund’s compliance status. Under section 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’), an SMSF must have its central management and control (CMC) ordinarily in Australia to retain its complying status. When a business owner moves offshore and continues as a trustee, this test can easily be failed.

The consequences of non-compliance are severe. A non-compliant SMSF is taxed at 45% instead of the concessional rate of 15%. To avoid this outcome, the critical pre-departure step is to appoint an Australian resident trustee or director to ensure the fund’s CMC remains in Australia.

Additionally, during the non-resident period, it is important to avoid making contributions or rollovers into the SMSF. These activities can cause the fund to fail the separate active member test, creating another compliance failure point for business owners living outside Australia.

Wills, Trust Deeds & Shareholder Agreements

Certain legal documents that govern assets and business control are based on Australian residency assumptions and require a specific review before moving offshore. Failing to update them can lead to unintended and often irreversible consequences after departure.

Three documents are critical to review:

1. Wills & estate plans: An Australian will does not automatically govern offshore company shares or foreign real property. The succession of these assets is often determined by the laws of the foreign jurisdiction, which may include forced heirship rules that can completely override the terms of an Australian will.
2. Trust deeds: Many Australian discretionary trust deeds contain clauses that assume the key controllers, like the appointor or principal, are Australian residents. If one of these individuals becomes a non-resident, the deed’s default provisions can be triggered, potentially passing control of the trust to unexpected parties.
3. Shareholder agreements: A change in residency status can trigger specific clauses in a shareholder agreement, such as buy-sell clauses, put/call options, and drag-along rights. A business owner moving offshore without reviewing their agreement may find that other shareholders gain rights to acquire their shares at a pre-determined formula price.

What the Offshore Structure Needs From Day One

Genuine Substance & Banking Before Incorporation

For Australian business owners, an offshore structure must be real from its first day of operation, not just an idea on paper. This requires establishing two critical foundations before the company even legally exists:

1. Genuine substance: Real decision-making happens in the offshore jurisdiction, supported by qualified directors who actively govern the company. It also includes having appropriate premises consistent with the scale of operations. A structure that exists only as a mailing address while all strategic decisions are still made in Australia lacks genuine substance and will not support the residency position being established.
2. Banking before incorporation: Offshore banks are extremely reluctant to open accounts for newly incorporated entities that have no operating history. Banking must be arranged before incorporation. Attempting to secure banking after the company is registered often results in an operational structure that has no functional bank account — a problem that is significantly harder to solve retrospectively.

Consistency Between the Structure & the Residency Position

The offshore structure must be consistent with the residency position the business owner is establishing at the same time. Any contradiction between the two can undermine the entire arrangement during a review.

A business owner who incorporates an offshore company and appoints offshore directors while their family remains in Australia, returns frequently, and whose economic life is still centred in Australia has a structure that contradicts their residency position. The ATO examines the whole picture — a structure that points offshore while the life of the business owner still points to Australia is exactly the inconsistency the ATO looks for in a compliance review.

Conclusion

For Australian business owners moving offshore, the destination is less important than the sequence of decisions made before departure. Getting the timing right on residency, tax elections, document reviews & the setup of your offshore structure determines whether the move is a success. These are long-term structural decisions, not simple paperwork choices.

If you are planning to move offshore, discuss your pre-departure sequencing with WealthSafe’s advisory team. We specialise in helping Australian business owners build international structures that are compliant, defensible & aligned with their goals.

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