Importance of Double Tax Agreements for Australian Expats – With the prospect of new tax residency laws being introduced in Australia, we have put together a refresher article on what Double Tax Agreements (DTA) are, how they interact with Australia’s tax residency laws, and why they are important for Australian Expats.
Note: The proposed new Australian tax residency laws are not discussed in this article. To learn about the proposed changes you can read our article here: https://atlaswealth.com/news/changes-to-the-australian-tax-residency-rules-affecting-expats/
What are Double Tax Agreements?
Double Tax Agreements are formal agreements that Australia has in place with other countries to prevent the double taxation of income earned by individuals and businesses overseas. They are used to facilitate the equitable cooperation of Australia’s tax laws and those of other international tax authorities. Australia currently has DTAs with 46 countries, which means there are a select few countries which Australia does not have a DTA with and Australian Expats should keep this mind.
You can view the full country list here: https://treasury.gov.au/tax-treaties/income-tax-treaties
When do Double Tax Agreements apply?
A Double Tax Agreement will apply where a person meets the tax residency rules in both Australia and their overseas country (i.e., they are resident for tax purposes in both countries). For the purposes of a Double Tax Agreement, a person cannot be a tax resident of both countries, and the DTA is invoked to determine which country the person is tax resident of through a Residence Article (more on this below).
Australian expats should familiarize themselves with the tax residency rules of their overseas county and confirm if they are resident there. Each country will have their own tax residency rules to determine residence and will generally (not always) require you to spend a certain number of days living there during an income year (e.g., 183 days). It’s important to note that a person’s tax status is separate to a person’s citizenship or immigration status in that country. For example, you can be a citizen of Australia and not a tax resident.
Why are Double Tax Agreements Important for Australian Expats?
Where a person meets the tax residency rules of both Australia and a DTA country, they are afforded transparency regarding their tax obligations. More importantly, they are provided tax relief as a person can only be deemed a resident in one of the two DTA countries. In most instances, Australian Expats are seeking to discontinue their Australian resident tax status, otherwise they are subject to tax on their worldwide income by Australia. Fortunately for those expats living in a DTA country, they are usually deemed a resident in their overseas country. This is determined using the tiebreaker rules.
To determine the country in which a person is a tax resident of, there is a Residence Article within the DTA with a set of tiebreaker rules. The Residence Article and tiebreaker rules will vary with each DTA; however, they will generally consider the location of your permanent home, the location of your habitual abode and also the location of your personal and economic relations. If you have evidence to support the above factors are in your overseas, then you will be a tax resident in the overseas country only. It’s important to note too that the current (and proposed) Australian tax residence rules do not impact on DTAs, as the DTA will take precedence over the Australian tax residency laws.
Consideration where there is no DTA in place
You can see how by living in an overseas country without a DTA in place, there could be tax implications where a person is deemed a tax resident in both Australia and their overseas country. Where you are residing in a non-DTA country, Australian expats should remain cautious of triggering tax residency when returning to Australia where this is not the intention. If you are unsure about your tax residency status in Australia, it’s advisable to contact a tax accountant or tax adviser for guidance.