How to determine your tax residency as an Australian Expat in the UAE and ensure you are classified as a non-resident
As a financial planning firm that specializes in Australian Expats, the most commonly asked question people have is that of tax residency and what they need to do to be classed as a non-resident for tax purposes.
This often comes as a shock to many, but simply living here in the UAE is not enough to ensure non residency status.
The ATO’s ‘tests’ for tax residency
There are 4 ‘tests’ that the ATO applies to classify someone for taxation purposes. You need only ‘pass’ one of these to be classified as an Australian Resident for Tax purposes regardless of ‘failing’ the other tests.
One will only be considered as a Non-resident for Tax purposes in the event that they ‘fail’ all 4 tests. The tests are:
- The Resides Test
- The 183 Day Rule test
- The Superannuation test
- The Domicile test (the bogey one for expats)
The Resides Test
The ‘Resides test’ is the easy one that many seem to think is the sole test for tax residency – that is, ‘where am I living?’ This question essentially relates to where you ordinarily reside and base yourself from. This is the primary test for deciding the residency status of an individual and whether the individual resides in Australia according to the ordinary meaning of the word resides.
However, where you do not reside in Australia according to ordinary concepts, you may still be considered a resident of Australia for tax purposes if you meet the conditions of one of the other three tests.
The 183 rule test
Should the resides test be ‘failed’ the next test applied in determining tax residency is the 183 day rule test, which dictates that if someone spends more than 183 days in Australia then they will be considered as an Australian resident for tax purposes.
This means that whilst you may be living here in the UAE, thus ‘failing’ the Resides test given you aren’t living in Australia, you may still be considered as an Australian resident for tax purposes if you spending more than 183 days within the tax year back in Australia. The 183 days may be either consecutively or simply cumulatively.
The Superannuation Test
This test relates to whether or not your employer is required by law to pay you the mandatory 9.5% superannuation guarantee contribution. This means that whilst you may be living in the UAE and spending the entire year here for example, thus ‘failing’ both the Resides and 183 day rule Tests (and the Domicile test too as detailed below), you will still be considered an Australian Resident for tax purposes if your employer is legally obligated to pay you super.
A perfect example of such a situation is an Australian Embassy employee or public servants whom are required to be paid superannuation. We have consulted several Australians here in UAE who have negotiated as part of their employment contract to have superannuation paid to them, however unless the employer is obligated to pay this irrespective of the contract then the staff member will still ‘fail’ this test.
The Domicile Test
This is the real doozy, the banana skin for expats that many can and do slip up on. The domicile test pertains to your behavior and where one continues to be ‘domiciled’ from and may not be where they are actually living.
This test essentially relates to where you are acting as the ‘center of your universe’ and requires that someone establish a ‘permanent place of abode’ in a set location outside of Australia. It is not enough to simply remove ties from Australia, you must show that you have established long lasting ties to your new residence.
Should one not take the steps necessary through their behavior to show permanency in an overseas location, then their ‘domicile’ will continue to be viewed by the ATO as being Australia.
As you can already imagine this test is quite grey, and in determining this test the ATO and tax commissioner take a ‘weight of case’ view to determining whether through someone’s behavior that their domicile is still Australia.
So what then are the factors in determining your domicile?
- Intended and actual length of stay
2 years in both intended (e.g. the employment contract) and actual length of stay seems to be a minimum figure that the ATO use to determine domicile. In other words, regardless of your behavior if you aren’t planning to and/or don’t stay in a fixed location overseas longer than 2 years then there is a very low probability of ‘failing’ the domicile test regardless of the rest of your behavior. The longer one stays in a fixed location overseas the better in establishing a domicile outside of Australia.
- Whether the stay in the overseas country was intended to be temporary before moving to another country or come home to Oz
Generally if you leave Australia with the intention of returning after a temporary overseas stay you will be considered a tax resident still unless other factors can be proven.
- Establishment of a home (fixed residence)
Establishing a ‘dwelling place’ – a fixed residence of the person – will demonstrate permanency to that place of abode. Temporary accommodation such as Single’s quarters, hotels, barracks, mining towns etc demonstrate that the place of abode is not permanent. Many expats here in the UAE are living in company accommodation. Given the lease is in the company name, this does not demonstrate that you have taken steps to establish a fixed residence.
- Whether place of abode exists in Australia or has been abandoned to absence
If a permanent residence is still kept in Australia by a family member or otherwise, or the house is simply left empty, then this is a major signal to the ATO that your domicile continues to be that of Australia. In this case it is advisable that your residence be rented out in a commercial arrangement.
- Duration and continuity of stay in an overseas country
It is not enough to be simply out of Australia for 2 years for instance. If no permanent place of abode can be demonstrated (e.g. moves country to country or moves around in same country) then the ATO will still continue to deem your domicile as that of Australia! Once again, from previous cases, the ATO generally use 2 years as a minimum benchmark.
- The durability of association with a particular place in Australia
Does the individual still have ties kept to Australia? I.e. are bank bank accounts maintained in Australia, have government departments such as the Department of Social Security been informed that he or she is leaving permanently and that family allowance payments should be stopped, are children still being educated in Australia, family ties such as whether children or spouse still live in Australia, and so on.
Practical tips to determine your tax residency as an Australian expat in the UAE and ‘fail’ the domicile test
- Actual stay in overseas country to be 2 years minimum
- Minimum 2 year employment contract
- Travel card to be marked as ‘leaving Australia permanently’ whenever travelling
- Family to live in overseas location – no one left behind in Australia
- Fixed residence established in overseas location either by renting or buying a residential property in individual’s name (not under company)
- Records kept for contracts taken out in new overseas location that demonstrate permanency to that location e.g. tenancy contracts, utility contracts, phone contracts, gym memberships, association memberships etc.
- Permanent residence in Australia to either be sold or rented out in commercial ‘arm’s length’ arrangement
- Fixed address of individual to be lived in for minimum of 2 years.
- Australian contracts to be ceased where reasonably possible. For instance phone number/service, Private health insurance, Car insurance etc
- Possessions to be sold, nothing kept in storage
- Medicare to no longer be used whilst living overseas
- Registrations, memberships and associations to be discontinued
- Surplus funds/salary should only be invested if sent back to Australia – do not send money back to Australia and leave in cash. Transaction description to be labeled as such e.g. ‘Property deposit’ or ‘share investment’ etc. Do not label as ‘salary’, ‘wages’ or ‘savings’ etc.
- Children to be educated in country of residence if possible
What about Superannuation?
Regardless of what you may have heard from many prominent ‘Independent Financial Advisers’ here in the UAE that are in and around the Australian community (who don’t work under an Australian Financial services License) who state to the contrary, Super is in fact agnostic when it comes to the question of residency and expats. You may continue to make contributions to super whether concessionally (before tax) or non-concessionally (after tax), without affecting your residency status.
What about Investment in Australia?
You may continue to invest in Australia without affecting your residency status. This includes current or future investment and covers share, property or business investment. As mentioned above, issues typically arise when sending money back to Australia and keeping the funds in cash – this demonstrates to the ATO that your domicile may continue to be that of Australia.
What happens if I’m still a resident from the above but I’m working in the UAE?
All income here in the UAE (or elsewhere) will be considered as assessable and taxed at the ordinary Australian resident tax rates. This includes any dividend or rental income from shares or property held outside of Australia along with capital gains on the disposal of assets held globally – certainly takes away some of the attractiveness of living and working in the UAE!
Ruling from ATO
General advice warning. The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.