Chapter 20: Expat Tax Traps to Avoid – Horror Stories, Penalties & How to Stay in the Clear

Every expat has that one friend — or was that one friend — who ignored tax stuff a little too long.

Spoiler: it didn’t end well.

This chapter is a tour of the dark side: real expat tax traps, classic mistakes, and ATO nightmares that could’ve been avoided with one extra coffee and a little planning.

Don’t worry, Felix is here to help you not become the next cautionary tale.

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What We’ll Cover

The top 10 most common expat tax fails

Real-life horror story highlights

What triggers the ATO to come knocking

Penalties, interest & the “we know where you live” letter

How to fix mistakes without panic attacks

Felix’s bulletproof “stay out of trouble” checklist

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Top 10 Expat Tax Fails (AKA: Don’t Be This Person)

1. "I left Australia, so I don’t need to lodge anymore."

Wrong. If you’ve got Aussie income (rent, shares, anything), the ATO still wants a hello every year.

2. "I’m a non-resident now, so I can sell my house tax-free."

Not since 2020. The main residence exemption is gone if you’re a non-resident when you sell.

3. "I’ll just keep using my Aussie bank account like normal."

That’s a big red flag for the ATO. If you act like a resident, they may tax you like one too.

4. "Franking credits are amazing!"

Yes — but only for residents. Non-residents can’t claim them. Sad but true.

5. "I didn’t declare my foreign income. They’ll never know."

Spoiler: they will. Australia is part of global info-sharing networks. Your secret Swiss account isn’t secret anymore.

6. "I didn’t get a TFN for my kid, but I opened investments in their name."

Uh oh. That’s a tax headache with a side of penalty sauce.

7. "I didn’t realise crypto counts as income or CGT."

It does. Whether you’re in Bali or Berlin, the ATO still considers it real money.

8. "I forgot to tell the ATO I moved."

They’ll find out when they send mail to your old address — then charge you late lodgment penalties.

9. "I claimed my overseas school fees as a deduction."

Nice try. Education expenses aren’t deductible unless you’re on official government assignment.

10. "I just guessed my tax residency on the return."

Oof. That’s how audits start. Always get advice if you’re unsure.

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Real Horror Stories (Names changed, cringe real)

“Mark” forgot to lodge his Aussie return for 5 years while working in Dubai. When he came home to sell his house, the ATO froze his refund and charged penalties. Total cost? Over $12,000 — and a crushed dream of a new fishing boat.

“Leah” sold her Sydney apartment from London thinking she’d qualify for the main residence exemption. Spoiler: she didn’t. Her $450k capital gain? Taxed in full.

“Kevin” kept using his Aussie super fund while living in the US. He didn’t report it to the IRS. Now he gets love letters from both the ATO and the IRS. He is not okay.

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What Triggers the ATO to Audit You?

Missing or late returns

Foreign income that suddenly appears

Big capital gains with no explanation

Contradictions in residency declarations

Your neighbour dobbed you in (yep, there’s a hotline)

Felix tip: The ATO doesn’t audit randomly. If you keep your story straight and your records clean, you’ll fly under the radar.

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Penalties, Interest & Sad Wallets

Late lodgment penalty: $313 and counting every 28 days

Interest charges: Compounded, relentless

Administrative penalties: Up to 75% of your tax bill if you were reckless or evasive

Translation: The ATO believes in tough love.

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How to Fix It If You Mess Up (Because Life Happens)

Step 1: Don’t panic

Step 2: Lodge a voluntary disclosure (the ATO goes easier on you if you confess)

Step 3: Work out a payment plan if you owe money

Step 4: Get help from a tax agent who understands expat tax (bonus if they drink strong coffee and don’t judge)

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Felix’s “Stay Out of Trouble” Checklist

Lodge your return every year, even from overseas

Keep records for at least 5 years

Declare everything — even small overseas income

Update your address and residency status with the ATO

Don’t DIY complex stuff (get help, seriously)

When in doubt? Assume the ATO knows, and act accordingly

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In Summary

Expat tax mistakes are common — but they’re also avoidable.

The key is to be proactive, honest, and just organised enough to stay out of the ATO’s highlight reel.

Felix’s final word: You don’t have to be perfect. Just don’t ghost the tax office. They’re like your clingy ex — they’ll find you eventually.