complexity of Australian tax residency

Complexity of Australian tax residency

As Australians, we love to travel. We pursue adventure, work, fun, love, and life on every corner of Earth.As an Australian citizen, you may intend on returning to the land of Oz after your travels and plans may change once you fall in love with a far away place. Whatever your intentions, as an expat, at some point you’ll need to consider the complexity of Australian tax residency!

Just because you are not residing in Australia, it doesn’t mean that you’re exempt from your Australian tax obligations. As well as your Australian tax return, you need to consider the assets that you own in Australia – especially if you own property. Life may be great overseas, but don’t let the Australian Tax Office turn against you in your absence.

Tax residency status

When you are planning to leave Australia, you need to determine your tax residency status. And as residency is assessed annually, you need to determine this each financial year that you are away! The tax residency rules aren’t the same as the residency status that you use for immigration. Even if you’re an Australian citizen by birth, you may be treated as a non-resident by the Australian Tax Office, depending on your circumstances.

There are four tests that the ATO uses to determine your residency. If you pass any of the four tests, you will be treated as a tax resident of Australia:

1. Resides test

Although it sounds pretty clear, this concerns where your normal place of residence is and includes factors such as your residency history, whether you have a family, and your economic or business ties to any country. The decision is made on balance, but a good rule of thumb is a measure of two years abroad.

2. Physical presence test

If you have been in Australia for 183 days or more, you will be considered a tax resident. Note, however that the days counted do not have to be consecutive days . . . so all days that you are present in Australia are counted.

3. Domicile test

Everybody has a domicile by birth or a domicile by choice, if you’ve changed your citizenship. Either way, we’re talking about you ‘home country’. However, where is your ‘home country’? If you don’t have a permanent home outside Australia, then you’ll be treated as a tax resident of Australia.

But what does ‘permanent home’ mean? Sadly, the term permanent home isn’t defined by Australian tax legislation, so you’ll need to turn to legal case-law and tax rulings to understand the intricacies of this term.

Of all of Australia’s residency tests, it’s the domicile test that is usually hardest for an Australian expat to overcome!

4. Commonwealth employee test

If you’re a member of the Commonwealth Superannuation Scheme, you will be a tax resident of Australia. Diplomats and government workers usually fall into this category notwithstanding that they may have been working overseas for many years.

Australian tax

If you are considered a tax resident of Australia, you will need to submit your worldwide income and capital gains to the ATO in your Australian tax return, all of which will be subject to Australian tax. However, if you are not considered a resident, only the income and capital gains sourced on a taxable Australian property will be taxable in Australia.

As you probably guessed, these rules are complex and intricate so take extreme care when preparing your return!

Be careful not to pay too much or too little on your Australian tax return. Make sure you speak to someone who specialises in Australian tax returns in an international context.

Questions? . . .


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Shane Macfarlane
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Shane Macfarlane

CEO & Founder at Expat Tax Services
Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia).Shane's passionate about tax and legitimate tax minimisation, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.Beyond tax and accounting, Shane's an entrepreneur, having devised, created and founded a successful accounting startup, Fifo Workpapers (acquired by accounting software giant, Intuit inc. in 2013)

In short Shane's a tax and software techno-geek, who recognised that Australian expats were unable to obtain the specialist advice and quality service, that they needed from their accountants. Accordingly, Shane founded Expat Tax Services to provide Australian expats with access to specialist, quality advice at fair and reasonable prices (no hourly rates, fees quoted upfront with unlimited support included) . . . receive the support and advice you need without having to take second-mortgage to pay your accountant's bill! Speak to Shane & the team today.
Shane Macfarlane
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