Australian Tax Residency for Yachties: What You Need to Know
If you work on a yacht or cruise ship, understanding Australian tax residency for yachties is crucial for how your income is taxed. Australian tax residents face taxation on worldwide income, while non-residents are generally taxed only on Australian-sourced income.
Key Factors in Tax Residency
Your employment abroad typically qualifies as foreign-sourced income. However, if you remain an Australian tax resident, this income becomes taxable in Australia. You are classified as an Australian tax resident if you meet any one of the following four tests:
- Resides Test: You generally reside in Australia.
- Domicile Test: You are an Australian citizen or have adopted Australia as your home, unless you possess a permanent home outside Australia.
- 183-Day Test: You spend 183 days in Australia each year, unless you have a usual place of abode outside the country.
- Commonwealth Super Test: This applies to certain government employees, such as those on diplomatic or military postings.
Many assume the 183-day test is the sole factor, but the resides and domicile tests often apply even if you spend less than 183 days in Australia. The resides test may apply if you frequently return to Australia when not working and maintain your life there.
Understanding the Domicile Test
The domicile test frequently impacts seafarers working under Australian tax residency. According to the Australian Taxation Office (ATO) ruling TR 2023/1, the type of accommodation you occupy overseas is relevant in determining whether it constitutes your permanent place of abode. Temporary accommodations like hotels or employer-arranged lodging usually indicate a non-permanent presence abroad.
Even if you have allocated accommodation on a yacht, you must establish a permanent place of abode outside Australia. This issue was highlighted in Harding v Commissioner of Taxation [2018] FCA 837, where the court ruled that moving between apartments didn’t negate the establishment of a permanent place.
However, the nature of a yacht as a mobile vessel complicates this. In Duff v Commissioner of Taxation [2022] AATA 3675, the taxpayer worked on a cruise ship with a 4-month-on, 2-month-off schedule. The court found that they did not have a permanent place of abode overseas, as it requires identifying a single country where you live permanently.
Establishing Non-Resident Status as Seafarers for Tax Purposes
To achieve non-resident status under Australian tax residency for yachties, you must genuinely establish a permanent place of abode in one country. This involves more than superficial arrangements; it requires a substantive connection, such as:
- A long-term lease in a foreign country
- The necessary visa for permanent residency (not just a holiday visa)
- Keeping personal belongings at that location
- Spending significant time living there
If your time in Australia exceeds your time abroad, the ATO may scrutinise your arrangements closely.
Audit Risks and Considerations for Australian Yachties
The ATO can audit your tax positions for up to two years, or indefinitely in cases of fraud or evasion. If you have not submitted returns, those years are also subject to review. The prospect of interest and penalties can be daunting.
If you need guidance on your tax position or wish to correct historical lodgements, please contact our tax team for assistance. For expert advice on managing your tax residency as a yacht worker, click here to contact us.