Are You An Australian Tax Resident?
Did you know?
It is possible that you may be a tax resident of two countries simultaneously.
If you are a dual resident of a country with a Double Tax Agreement “ DTA” with Australia (such as Singapore, China, Indonesia, Japan, Korea, Malaysia, Philippines, Taipei, Thailand, and Vietnam), the employment income articles of the DTA may exempt your foreign employment income from Australian tax. “Dual residency” is always a problem if you live in Hong Kong due to the absence of any Double Tax Agreement (“DTA”) between the Australian Government and the Government of the Hong Kong Special Administrative Region.
It is possible you can be an Australian resident for tax purposes without being an Australian citizen or permanent resident.
It is possible for a husband and wife to leave and return to Australia at the same time and have different Australian tax residence status.
It is also possible that a short-term transfer to another location after being a non-resident previously can automatically trigger Australian residency.
For Singapore, you may have a reduced risk of a “residency audit” which is notably a problem for Hong Kong for example. Foreign nationals working in Australia are automatically exposed to full residence taxation in the event of a relationship with an Australian citizen or Permanent Resident.
What Are The Basic Rules?
The question of your Australian tax resident status is probably the most important question you need to ask yourself when you are planning to move overseas and returning to Australia.
As an Australian resident, you are taxed on your worldwide income/capital gains.
If you cease to be an Australian resident you are taxed on your Australian sourced income and Capital Gains Tax is limited to Australian property.
In your offshore location, you may find you are taxed only on your employment income and often at much lower tax rates. Meaning you are free to structure your investments offshore AND in Australia in a way that legally avoids or reduces tax liability.
Tips For What You Must Do Now
There are a number of tests the Australian Tax Office will use to determine whether or not you are an Australian resident for tax purposes. You are an Australian tax resident if you satisfy any of the following tests:
The Reside Test - You are an Australian tax resident if you reside (live) in Australia.
The Domicile Test - If you do not reside in Australia, you may still be treated as a tax resident if your Domicile is Australia unless the Commissioner is satisfied you have established a permanent place of abode outside of Australia.
The 183 Day Test - If you are actually present in Australia for more than half the income year, whether continuously or with breaks, you may be said to have a “constructive residence” in Australia, unless it can be established that your usual place of abode is outside Australia and you have no intention of taking up residence here.
The Superannuation Test - This test is designed to ensure those Commonwealth Government employees (and spouse) working at Australian overseas posts are treated as Australian residents.
As an Australian expatriate, your tax residency status very much depends on your personal facts and circumstances and there are no conclusive rules for determining your tax residency. However, as an Australian expatriate, the domicile test will generally be the most relevant test. To avoid being considered an Australian tax resident you need to satisfy the Commissioner that your permanent place of abode is outside Australia.
In determining whether you have established a permanent place of abode outside of Australia, the Commissioner sets out in his Taxation Ruling TR 2023/1, factors that need to be considered.
The weight given to each factor will vary with the individual circumstances and no single factor is considered conclusive. The factors you need to consider are:
The intended and actual length of stay in the overseas country.
Any intention to return to Australia at some definite time or travel to another country.
The establishment of a home outside Australia.
The abandonment of any residence in Australia.
The duration and continuity of the persons presence in the overseas country and
The durability of association the person has with a particular place in Australia.
Case Study
The ATO Ruling provides an example of Sophie who has been determined to be a non-resident of Australia.
Facts
Sophie, an Australian resident decides to start business in Singapore and obtains suitable premises and takes all necessary legal steps to commence business.
Sophie is accompanied by her spouse who runs a global consulting business from home with the intention to live in Singapore with no set plans to return to Australia. One of her adult children will live in family home rent-free.
Bronwyn is uncertain whether she will extend the option to stay after three years and will decide later, depending on how the family like the life there. Sophie maintains bank account in Australia and sells or gifts her possessions to her adult children.
After initially staying in short-term accommodation, they purchase a home to live in and in the 2-years after leaving, they return to Australia only to attend funeral of close friend.
Outcome
Sophie is considered a NON-RESIDENT for Australian tax purposes. It was concluded that the above four residency tests were not satisfied, in particular:
The Resides Test
Sophie is not a resident under the ordinary concepts test from date of departure. Her intention is to leave Australia indefinitely and her behaviour is consistent with this. Her bank account and superannuation are not, in Sophie’s circumstances, consistent with residing here.
The Domicile Test
Sophie is not a resident under Domicile test because, although domiciled in
Australia, she has abandoned residency in Australia and commenced living permanently overseas.
The 183 Day Test - Not applicable.
The Superannuation Test - Not applicable.
Critical Questions
Residency (Australian and host country).
The High Court of Australia ruled long ago it is a question of fact of where you live and therefore reside for tax purposes. The High Court also ruled an individual can reside in more than one place, you need to be mindful if you reside outside Australia and you maintain and regularly stay with family in Australian home you may be a dual resident.
So what’s the practical approach if you are “domiciled” in Australia?
You really need to depart Australia with your family and dispose of that Australian home (either sell or let to long term tenants).
But the tax laws have tentacles and you must also satisfy the Commissioner you have established a “permanent place of abode outside Australia”.
The Federal Court long ago ruled this means you must have a place of abode offshore and it will be permanent in the sense of a substantial period of time (as opposed to permanent in the sense of forever) being for a period of at least 2 years.
And yes, you can visit Australia while residing offshore, but you cannot live here.
Try this simple “bright” line test.
Your position (at one end) is you reside offshore and you visit Australia on business trips or annual holidays etc. If that’s so you should retain your non-resident status.
But consider what the Commissioner may think, particularly if you have family and/or a home in Australia. He may consider you reside in Australia and you commute to work offshore (at the other end of the bright line test). It’s a question of fact and maybe you are in the middle of this bright line. That’s why you need good advice before departing and while you are offshore. Proposed new residency rules mean you will be a resident if you spend more than 44 days in Australia in a year of income and you meet at least two of the four “connection tests” (permanent right to reside in Australia; accommodation/property; family or certain economic interests).
Exemption from Australian tax on Singapore remuneration for dual residents
The Double Tax Treaty includes relief from Australian tax on Singapore employment income for dual tax residents where the “permanent home” is determined by “tie-breaker rules” to be Singapore. There is further relief for “work days” in Australia where the employer is outside Australia, less than 183 days in aggregate spent in Australia and no tax deduction can be claimed by an Australian branch or permanent establishment of the business in Australia. Where restrictive 45-day new proposed residency rules apply, Treaty relief will be sorely sought after by Australians living and working in Singapore.
How InterRetire Can Help You
If you’re an Australian expatriate who is considering moving back to Australia, we can help you maximise your assets, minimise your tax obligations and help you transition smoothly.
Disclaimer: This article provides general information on avoiding double taxation in Australia and should not be considered as professional tax advice. It is recommended to consult with a qualified tax advisor or accountant for personalised guidance based on your specific circumstances.
