When am I an Australian tax resident? (The big question for expatriate executives visiting Australia on a regular basis)
In the post-Covid period one topic of discussion amongst Australian expatriates, arises more than ever being Asian based executives who have been expats for 10 plus years and whose families have now relocated back to Australia for schooling or other family reasons.
Under new family arrangements, when the expatriate executive returns to Australia on a regular basis to visit family, weekly, monthly or quarterly, this can impact their tax residency status
How does this impact the Asian based executive’s Australian tax residency status?
The basics
The question of Australian tax residency status for expatriates is often a key financial issue for discussion with your trusted tax advisor because in many locations, particularly Asia, you will pay a lot less tax than if you were to stay in Australia.
As an Australian resident, you are taxed on your worldwide income and 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 taxable Australian property. In your offshore location, you may find you are taxed only on your employment income and often at a lower tax rate. Meaning you are free to structure your investments offshore and in Australia in a way that legally minimises overall tax liability.
The Current Rules
Long ago the High Court of Australia ruled it is a question of fact where you live and therefore reside for tax purposes. The High Court also ruled an individual can reside in more than one place, so you need to be mindful if you reside in say Hong Kong and you maintain your family in your Australian home because you may be a dual resident.
So what’s the practical approach if you are “domiciled” in Australia? In practical terms this will be the case where you are an Australian-born citizen or an individual who migrated to Australia early in life and is an Australian citizen. To be correctly treated as a non-resident of Australia for tax purposes, you first need to depart Australia with your family and dispose of that Australian home (either sell or let to long term tenants) and cease to reside in Australia (as a question of fact).
Australian tax laws have tentacles, and for a domiciled Australian, 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 must be permanent but not in the sense of being forever. In the context of the residency rules, it must be permanent as opposed to temporary or transitory and the "rule of thumb" is, it must be for a substantial period of time being for a period of 2 years or more. The ATO emphasises there are a number of factors involved and no one factor is determinative.
The ATO in their recent Residency Ruling TR 2023/1 makes the point that you must have definitively abandoned your Australian residency and commenced living permanently overseas.
And yes, you can come back to Australia for short visits while residing offshore, but you cannot live in Australia.
Tax Residency Test (for expat executives travelling to Australia regularly)
If there were a "bright line test" consider your position (at one end) where 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 to reside in Australia and you commute to work offshore (at the other end of that mythical bright line test).
Residency under current Australian rules is a question of fact and if you have family living in Australia this simplistic (and mythical) bright line test may well raise some doubts in your mind about your correct residency status. While residency is an individual test and the fact your spouse and family reside in Australia does not in itself determine your Australian residency while living and working offshore, any physical presence by you in Australia may well prejudice your non-resident status. While you and your family previously legitimately resided offshore and may well have visited Australia for the usual 4-weeks annual leave, contrast that position with visiting your family in Australia for that usual 4-weeks annual leave and see how the change in family circumstances starts to dilute your argument as to non-residency status. Add to that equation several more such visits and you can see why the ATO can become more interested in reviewing your non-resident tax returns.
And don't overlook Treasury is looking forensically right now at that beautifully simplistic but controversial (and as yet unlegislated) 45-day test to somehow simplify residency rules in the future.
That’s just one good reason why you need expert advice whilst you are offshore and before departing or returning to Australia.
Regards,
Dale Hoy
m) +61 419 364 994
#ExpatAustraliantax # Australiantaxresidency #foreignsuperannuation
PS If of interest, Book a private conversation with me at your convenience
