How does an Australian expat know they’re a non-resident for Tax purposes? – the topic of whether a Australian expat is a non-resident for tax purposes is probably the most commonly discussed subjects amongst the diaspora overseas.
You might be surprised that the Australian Taxation Office (ATO) will not assess someone’s residency circumstances in the same manner as the Department of Home Affairs.
To be regarded as a tax resident the current rules required you to pass several objective and subjective tests which are:
- Residency test – that you normally reside in Australia or
- 183-day rule – that you have spent 183 days in Australia or that you can show you normally reside elsewhere.
- Domicile – you home is in Australia, and you don’t have a permanent residence elsewhere.
- Government Super Scheme – you are a contributing member of certain Government schemes.
So, it follows that to be a non-tax resident you:
- Don’t reside in Australia.
- Spend less than 183 days there.
- Have a permanent address elsewhere.
- Not be a contributing member of the Defined benefit Government Super Schemes.
Well, you would be wrong.
The issues with this test have been the substantial grey areas that arise when you consider the complications arising from modern life including, divorce, multiple family groups, child maintenance, dual nationality, and ATO discretion.
Will the Non-Resident Rules Change for Australian Expats?
The proposed changes to the tax residency rules were announced in the 2021/22 budget and the framework came from a Board of Taxation (BOT) report that was originally prepared in 2018 and is more than likely to become law in the coming years.
The proposals would make ceasing residency a more certain exercise for prospective non-tax residents. The Boards proposal includes a primary 183-day test, so if you are in Australia for 183 days you are a tax resident without question.
The secondary tests then determine your status if you haven’t spent 183 days in Australia. Under the proposed arrangements you may still be considered a tax resident if you have spent more than 45 days in Australia in the previous year based on the following objective factors.
- Whether you have a right to reside permanently in Australia.
- Whether you have Australian accommodation.
- Whether you have family in Australia.
- Whether you have economic interests in Australia.
The Board’s view was that if you have a right to reside and you spend 45 days or more in Australia (a far fewer number of days that the 183 line) then meeting 2 or more of the factors above would also make you tax resident in a year that you work overseas.
It is proposed the 45-day rule will apply for the first three years of non-resident employment. But all this will be subject to the vagaries of draft legislation and the parliaments deliberations.
What Are Our Thoughts On The Proposed Tax Residency Changes?
Overall, we believe the BOT’s approach to this issue is both reasonable and fair with the big benefit of such a regime eliminating many of the areas of the ATO’s subjective assessment though we would have preferred to see the time in country test to be 90 days rather than 45.
Under the new proposed changes they do remove the subjective nature of the current non-resident rules that Australian expats have had to manage since the legislations inception in 1936.
What Does a Australian Expat Need to do to Remain a Non-Resident for Tax Purposes?
If you want to be sure that your overseas earnings won’t lead to a taxing event in Australia you need to keep your visits to less than 45 days for at least the first three years, as well as;
- Maintain a period of continuous employment overseas (go for 3 to 5 years)
- DO NOT keep an empty home in Australia.
- Move your family with you to your new Country
- And, don’t maintain other domestic Australian business interests.
The legislation is likely to pass both houses as it has broad bipartisan support, and overall delivers a high degree of clarity that has been missing from this question.
Who is Atlas?
No matter where you are based in the world, we have the experience in providing tax financial advice and financial planning services to the Aussie expat community.
With clients in over 38 countries it doesn’t matter whether you are based in New York, Hong Kong, Dubai or London we have the skills and expertise in ensuring that the advice that you receive is tailored to you.