Are you working overseas in a low tax jurisdiction and paying little or no tax? If so, and you haven’t considered tax residency requirements, you might be liable to pay tax in Australia.
Your tax position all depends on your classification as an ‘Australian Resident’ for tax purposes. To substantiate this, the Income Tax Assessment Act 1936 (subsection 6(1)) and Taxation Ruling TR 98/17 are relevant. Outside of this, there is other tax legislation, rulings and case law which are continually changing the scope of an ‘Australian Resident’. Therefore, it is always important to seek legal advice regarding your tax position as an Australian expatriate.
Taxation Ruling 98/17 is a comprehensive document which outlines which factors determine the tax residency status of individuals. This is a notable ruling for Australians who work overseas. A key message to take from TR 98/17 is that “no single factor is likely to be decisive and many will be interrelated.”
There are 4 tax residency tests which all be considered. If you pass any of the tests you are an Australian tax resident.
The four tests are:
1. The Resides Test/the Ordinary Concepts Test;
2.The Domicile Test;
3. The 183-day test; and
4. The Superannuation Test.
The Resides Test:
This tax residency test considers whether you may be considered a resident according to ordinary concepts. Generally, the Australian Taxation Office will consider this test as a question of fact and degree. Thus, they will look at your ordinary day-to-day activities and weigh this up as a question of fact and degree. Generally, if you are present in Australia for a period of 6 months, either continuously or intermittently, you will be taken to be an Australian Resident.
Some of the ordinary concepts which you should be aware of that the ATO considers are:
There are several rules around substantiating these and it’s important to seek legal advice to determine your position.
If you fail to be considered an Australian Resident under the Ordinary Concepts Test, you must still be aware of the other tests which may class you as an Australian Resident.
The Domicile Test:
Your domicile is acquired at your place of birth and it is retained until you change it by choice. Unless you can prove that you have exercised a domicile of choice in another country, you will be considered an Australian Resident for tax purposes. To avoid this, you must have established a permanent place of abode outside of Australia. There are a number of variables that the ATO considers to satisfy this. Some of the factors that the ATO considers that you should be aware of, include:
There are a multitude of variables which the ATO considers within these and each case differs on its own merits. This test has a large scope and can be complex. It is always best to seek legal advice to substantiate your domicile.
The 183-day Test:
This tax residency test is more straightforward than the others. Where it can be established that you have spent more than half the income year in Australia, you will be considered an Australian Resident for tax purposes. The period of time you have spent in Australia will be aggregated to establish this.
This test makes it important to consider how frequently and how long to you travel to Australia.
The Superannuation Test:
The superannuation tax residency test is relevant if you are a Commonwealth Government employee. If you are a Commonwealth Government employee, this can cause implications for your tax position. A key factor to be mindful of is your Australian Superannuation eligibility.
It is important to remember that every case changes on its own circumstances.
If you have any doubt about your tax residency status call us today to speak to one of our tax experts or email us at firstname.lastname@example.org