Could Remote Working During the Pandemic Affect Your Tax Burden?

During the recent Covid-19 pandemic, in line with Organization for Economic Cooperation and Development (OECD) guidance, the Australian Taxation Office (ATO) issued some additional guidelines for Australian expats who returned to Australia to visit, but who couldn’t leave due to covid restrictions either here or in the country they wished to return to.

Usually, Australians living in Australia who work remotely for foreign companies, or who are classed as employees of a foreign employer, are still be required to pay tax to Australia rather than to the foreign county. This is generally due to the fact that the person would usually be a tax resident of Australia, taxable on worldwide income.

Ignoring the application of tax treaties (for the purposes of this article), even where an expat working remotely from Australia qualifies as a non-resident, as employment income is deemed to be sourced where the person carries out their activities, income that they earn from working remotely (for a foreign employer) from Australia is ‘Australian sourced income’ and would therefore usually be taxable in Australia, notwithstanding that the person might be a non-resident!

23/11/2023 – Editors Note: Please note – if you are a non-resident, historically your income would usually be considered foreign sourced (because you perform your activities overseas), and thus not subject to taxation in Australia. However, in recent months, the Australian Taxation Office has inexplicably reversed their stance, and are now attempting to argue that your income will be Australian-sourced if the benefit of your employment services is received and/or felt by your Australian employer in Australia, despite that there has been no new legislation, or new court decisions handed down on this issue!

In short, the ATO’s new stance is NOT law, and it is thus doubtful whether they would be successful in arguing that point in a legal case arguing the issue. We bring this to your attention however, to consider, if you are working remotely for an Australian employer. To read more, take a look at our article titled Remote Workers – Australia’s opportunistic tax grab published 11/11/2023.

Did you return to Australia during the pandemic?

As explained above, the ATO issued guidelines in line with OECD guidance for pandemic related tax issues in response to the pandemic.

Those guidelines stated that expat workers who couldn’t leave the country due to pandemic restrictions would not be liable for Australian tax if they continued working remotely for the foreign business they normally worked for when they lived abroad on the basis that:

  • You permanently reside overseas – note this usually means that you must have maintained your home overseas (where you continue to maintain your furniture, belongings and personal effects), and where you continue to pay rent, and which remains vacant available for your use notwithstanding that you may be in Australia (i.e. not rented out on AirBnB etc),
  • Intend to return to your home overseas as soon as it is possible to do so, and;
  • You don’t intend to reside in Australia – note that this usually means that you have arranged short, term temporary accommodation in Australia (staying in an AirBnB, a hotel/motel, or with friends or family in their homes temporarily). This also means that you should not have rented or leased a property (e.g. where you have a formal lease for a period of time, where you pay rent, where the utility bills for the property are in your own name).

It should be noted however, you may be classed as a tax resident if you remain in Australia for a significant time period (for example when you rent a home to stay in Australia), or if you don’t intend to return to your home country as soon as it’s practically possible.

An extended stay in Australia can potentially change your residency status. For instance, if you stay here for 183 consecutive days, you technically satisfy the requirement for Australian tax residency, unless it can be argued that your usual place of abode is outside of Australia and that you do not intend to reside in Australia.

The guidelines issued by the ATO have allowed expats that had returned home to visit at the time of the pandemic, but who then found themselves unable to leave due to covid restrictions, to continue working remotely for their overseas employer, without becoming subject to taxation in Australia (and remaining taxable, often at a lower tax rate, in the country where they normally reside)

ATO guidance has changed

Recent guidance from the ATO states that visiting expats who could have left Australia to return to their usual place of residence during 2021, but who chose not to (rather than were unable to due to covid restrictions), will likely face the prospect of paying tax in Australia potentially in addition to paying tax overseas!

This is because, depending on the circumstances of their stay, the individual could be classed as a resident. This is the case even if their employment remained with a foreign business and was conducted remotely.

Note that the tax paid in Australia would typically be creditable against the person’s tax in the overseas country (as a foreign tax credit) so that double-taxation does not occur, however this would usually result in higher tax costs as Australia’s tax rates are generally higher than most other countries!

Does this apply to you?

If you returned to Australia during the pandemic for whatever reason but didn’t return overseas when the relaxation of covid restrictions (both here and in your usual country of residence) meant it was possible to do so, it’s possible you could be classed as an Australian resident and taxed as such.

To find out if you’re affected and what to do if you so, get in touch with our Australian Expat Taxes team today.

Shane Macfarlane CA
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