As a result of the COVID-19 pandemic, many Aussie expats have been forced to return home, resulting in different Covid-19 implications for Aussie expats who have returned home, and for those remaining overseas. For those with businesses and family ties overseas, this arrangement has created havoc.
The uncertainty for expats and permanent residents stems from tax obligations and residency questions. To help clear things up, this article explains the current ATO guidelines for expats.
Australian residents temporarily overseas
If you are overseas due to the COVID-19 pandemic, your taxation responsibilities and obligations to the Australian government remain the same. If you have to pay foreign income tax to another country, You’ll generally be entitled to a foreign income tax offset (equal to the lower of the foreign tax paid, OR the average rate of Australian tax on that relevant income) and this will reduce the tax you pay in Australia.
Foreign residents temporarily living in Australia
If you’re in Australia due to the pandemic, you no doubt have questions about your tax residency status. The ATO guidelines state that you aren’t considered an Australian tax resident if:
- You permanently reside overseas,
- Want to return as soon as possible, and;
- You don’t intend to reside in Australia.
However, you may be classed as a tax resident if you remain in Australia for a significant time period, or don’t intend to return to your home country as soon as it’s 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. Although, if your stay is temporary, this should not be a concern for you.
When determining the source of employment income, the place the work is carried out is usually the most prevalent factor. However, in a COVID-19 environment, there are other factors to be considered when deciding the source of that income. The most important of these are:
Paid leave – Is your primary income earned overseas? Are you on paid leave (i.e. holidays) while in Australia? If so, you do not have to report it to the ATO. The reason is, this income is considered foreign-sourced.
Remote work – COVID-19 has forced many businesses to pivot; meaning many employees are working remotely. If you are working for your foreign employer whilst in Australia for three months or less, you do not have to report it on your tax return. However, if that term extends further, the rules and the outcomes are more complicated and so we recommend that you seek advice from a suitably qualified expatriate tax firm, like ours and various others.
For more comprehensive COVID-19 tax advice or assistance with the preparation of your Australian tax returns, contact our Expat Tax Services team today.