After the past couple of tumultuous years, it’s hard to believe that this last tax year (2021/2022) has passed so quickly! Given how quickly time seems to pass nowadays, it’s probably no surprise, that you’ll need to begin thinking about your 2022 Australian tax returns soon.
Preparing your tax return can be a complex process for anyone, but it becomes even more complicated if you are an Australian expat living overseas, or if you’re living in Australia but have overseas income.
It can be easy to feel overwhelmed by the many different factors and considerations that come into play when preparing and lodging your Australian tax returns, but it doesn’t have to be stressful.
Firstly, make sure that you take all of your income streams into account. Then be sure to consider other factors including your residency status for Australia and for overseas, and also, take a look at whether a double tax agreement (DTA) might apply. It’s important to do this, to ensure that:
- you don’t end up paying more than you need to;
- your return is totally accurate; and so that,
- you stay on the right side of the Australian Tax Office (ATO) as you don’t want to have a black mark against your name there!
To help avoid these issues, take a look below at some of the following international tax issues that you should consider when getting your 2022 Australian tax returns ready.
And remember, if it’s all too difficult or if your time’s too valuable to put your return together yourself, you can always reach out to expatriate tax specialists such ourselves here at Expat Taxes – we’d be happy to take care of your taxes for you so the process of preparing your Australian expat tax returns, becomes even more straightforward.
When do your Australian tax returns need to be filed?
If you are living overseas, it’s understandable that you can get the different tax return dates confused – after all, most countries (logically) use the calendar year from 1st January to 31st December as their tax year, whereas Australia uses from 1st July to 30 June each year! After being overseas for some time, it can be quite easy to forget the Australian tax year and it’s associated lodgement dates.
The important date to remember when it comes to your Australian tax return is that (unless you’re registered with a tax agent) you’ll need to lodge your tax return by 31st October 2022. If you cannot meet this deadline, you may be able to apply to the ATO for an extension, however you’ll generally only be able to extend for a month or two at best.
An important but little known fact is that if you sign up with Expat Taxes (or another registered tax agent) and are added to our Australian Taxation Office (ATO) client listing before the due date for lodgement of your 2022 tax return (i.e. before 31st October 2022) then your tax lodgement date will be automatically extend until 15th May 2023. Note this assumes that you’d prior year tax return was lodged on time!
If you are expecting a large tax bill, or if you need the extra time to gather your documents and prepare your return, this automatic extension can be very handy.
If you’d like to take advantage of an extended lodgement date for your 2022 tax return, be sure to get in touch with our team before 31st October 2022.
What should I consider for my Australian tax returns?
Firstly, your tax return will be based on the Australian financial year from 1st July until 30th June (so for this tax return, that would be 1st July 2021 until 30th June 2022). So, you’ll need to consider all of the income that you’ve earned (from all sources over that period). Now, just because we say to consider all income, it doesn’t necessarily mean that all of the income that you’ve earned will be taxable in Australia, even when you’re a tax resident of Australia!
If you’re a tax resident of Australia, on the face of it you’ll need to consider everything earned, both in Australia and overseas, across this date range, and you should also consider the various expenses that you wish to claim as deductions.
Although I’ve said that you may need to consider everything earned both in Australia and overseas, not all of that income may need to be included in your Australian tax return! In fact, some of that income could be exempt under Australia’s domestic income tax laws or alternatively, exempt under a double taxation treaty / double tax agreement (DTA) that Australia has in place with another country!
Understanding just how a double tax treaty applies can be confusing and difficult, even for many tax and accounting professionals, so you may need to seek some advice from us in relation to this for your return. With clients in over 100 countries around the globe, and with over 15 years of experience analysing and applying Australia’s double tax treaties, we’re well placed to assist!
If you’re a non-resident, then you’ll only be required to consider income that you have earned from Australian sources, and for capital gains tax purposes, you’ll need to consider the sale/disposal of those assets that are considered “Taxable Australian Property”.
You should also note that if you owned assets prior to becoming a non-resident and you chose not to include a deeemed capital gain or loss in your return as at the date you became a non-resident, any subsequent sale of those assets after becoming a non-resident will likely be taxable and at the very least should be considered. This is quite a complex area of law so you may wish to reach out to us for some assistance.
Are you a resident?
As there’s quite a difference in the tax outcomes depending upon whether you’re a resident or a non-resident, it’s important to understand your residency status. Don’t just assume that you’re a non-resident just because you live overseas as that’s not necessarily the case. In fact it’s quite easy to remain an Australian tax resident, even though you’re overseas so it pays to check your residency status with expatriate tax professionals like ourselves.
If you are lodging your first tax return, or your first tax return since moving overseas or if you’ve broadened your income to include income from foreign/offshore sources, you should think about whether or not you are a resident of Australia. In fact, since residency is determined annually, you’ll actually need to consider this every year!
Being a resident for Australian income tax purposes is slightly different concept to that of being a citizen or of being a resident for immigration/visa purposes.
If you have moved to a different country, you may be a non-resident of Australia, in which case, unlike a tax resident who is taxed on worldwide income and gains, you’ll only be liable for tax on income from Australian sources!
So understanding the distinction between a resident or a non-resident, and understanding your residency status is therefore critical to ensuring that you do not pay more tax than you need to!
Regarding your residency status, bear in mind, that just moving overseas does not automatically mean that you’ve become a non-resident for Australian income tax purposes. In fact, even if you’ve been outside Australia for greater than 183 days, that doesn’t mean that you’ve become a non resident! Why, because that’s only one of Australia’s four residency tests and to be a non-resident, you need to fail all four tests!
To learn more about Australia’s residency tests, take a look at this earlier article that we wrote on the topic Determining Your Australian Tax Residency Status.
Unless you’ve moved overseas permanently (broadly interpreted as meaning for a bare minimum period of at least 2 years, and preferably longer) and dependant upon other factors, then you will most likely have remained as a tax resident of Australia. This means that on the face of it (before considering tax treaties), you’ll be subject to Australian taxation on your worldwide earnings!
Double Tax Treaties
For some taxpayers, the existence of a tax treaty may mean that your employment income is not taxable in Australia, whereas for others, Australia may indeed have a taxing right over that person’s income!
Regardless, the existence of a tax treaty will usually mean that you’ll not be double taxed on your income when Australia and another country both claim taxing rights over your income. Just how a Double Tax Treaty applies to your earnings will depend on where you are currently living and working and on your personal, financial and employment circumstances.
It should also be noted that no Double Tax Treaty concluded by Australia is identical (as they’re all negotiated separately), so it pays to very carefully examine the specific tax treaty that applies in your case, instead of simply assuming how a particular treaty may or may not apply!
Do non-residents pay tax in Australia?
If you are a non-resident for tax purposes, you do not generally need to pay Australian income tax on your foreign (non-Australian sourced) earnings.
However, you will still need to pay tax on any income you earn from Australian sources. For example, if you generate rental income from an Australian property, or perhaps you did some consulting income in Australia, or earned interest, royalties or dividends from Australia (note for interest and dividends, these are subject to withholding taxes, not income tax) then you’ll be required to pay tax in Australia
Just a final note on residency, due to the subjective nature of Australia’s residency rules, due to the complexity of the rules, and due to the fact that a solid understanding of common-law and legal precedent is required, it’s generally best to consult with a tax professional in order to fully understand whether or not you are a resident for tax purposes. Many Australians mistakenly believe that they’ve become non-residents, only to discover that the ATO and/or the courts disagree, resulting in significant tax bills and penalties!
By way of an example, we recently met with a client who swore black and blue that he’d been a non-resident for over 10 years, however, upon closer examination of his circumstances it turned out that he’d in fact been a tax resident for all of those 10 years and that as a result, the ATO was expecting and demanding 10 years worth of taxes on 10 years of his foreign 9and previously untaxed) employment income resulting in over $350,000 of back-taxes (before penalties). With penalties we expect he’ll be forced to cough up over $500,000 – a terrible outcome, that with careful planning and consideration, could have been avoided!
Have you been through higher education in Australia? If so, then perhaps you have a Higher Education Contribution Scheme (HECS) debt, now known as a HELP debt that still needs to be repaid.
If so, then you’ll need to lodge a form with the tax office (known as an overseas travel notification) within 7 days of moving overseas. Additionally, if your worldwide income is expected to exceed approximately $12,090 then you’ll need to calculate and declare your worldwide income to the ATO via the lodgement of your Australian taxation return every year.
Note that you won’t necessarily be required to pay income tax on that income. Instead your worldwide income needs to be declared to determine whether you are required to make a compulsory HECS/HELP debt repayment.
You will be required to make a compulsory HECS/HELP debt repayment if your worldwide income takes exceeds the repayment threshold (currently $47,014 for 2022/2023).
If you exceed the threshold, then you’ll be required to repay a percentage potentially up to 10% of your worldwide income (for that year) as a compulsory HECS/HELP debt repayment. And yes, you read that right . . . your repayment will be a percentage of your worldwide income for the year, NOT a percentage of your HECS/HELP debt!
Take a look at the HECS/HELP debt repayment thresholds and percentages here.
Going back to Australia
If you have returned to Australia permanently during the last Australian financial year, your residency status will likely have reverted back to that of a tax resident of Australia. Even if you were previously considered to be a non-resident, once you have regained your Australian tax residency status, you’ll be subject to tax on your worldwide income and as such, may need to begin paying tax on your overseas income when previously that was legitimately able to be excluded.
Other issues that may you should consider if you residency status has changed, is the effect on your assets (as your worldwide assets will become subject to Australian capital gains tax once you become a tax resident of Australia. You should also consider the tax consequences of having foreign pension funds and of holding foreign currency denominated bank accounts, as there will likely be Australian tax consequences that need to be dealt with, and potentially planned for.
How Australian Chartered Accountants can help
As you can see, tax is complex, particularly when you’re an Australian expat, or a foreign expat in Australia and straddling two countries. As such, we believe that it is essential to consult with an expert in Australian expat taxes particularly if you aren’t sure how the rules apply to your situation.
It’s also no secret that being an expat when tax season rolls around can be a bit of a headache. As Australian Chartered Accountants with clients in over 100 countries around the globe and who have specialised in expatriate tax for over 15 years, we are no strangers to the multitude of issues that can arise. Whether you are living overseas or you are a resident with offshore income streams, or you aren’t sure of your residency status etc, we can help you to cut through the confusion and get your tax return ready without the fuss…. And definitely with fewer headaches!
As many of our team are also Australian expats living and working overseas, we are better placed than most to assist with the preparation of your Australian returns and in providing Australian and international tax advice to both Australian and foreign expats. After all, we have a vested interest in knowing how things work, both for our clients and for ourselves as that knowledge impacts both our own firsthand experience and our personal and professional lives!
If you need some advice or assistance with your Australian tax returns contact us today to find out more about how we can assist!