We are often asked to provide residency advice to Australians who are moving overseas (to Expatland) to live and work.
Although clients have many different tax issues, one issue which always arises, is whether the client will remain an Australian resident or will become a non-resident of Australia.
It is a fundamental issue since our whole tax system is based on residence. Australians who become non-resident only need to pay tax on their Australian sourced income. A common example of Australian sourced income is rental income from Australian property.
Many Australians move to countries like Singapore and Hong Kong, where income tax rates are comparatively low. Some move to countries like Dubai or Bahrain where they pay no personal income tax at all. In that case they will need to ensure that the they have the right advice on tax residency.
If care is not taken people can unwittingly find themselves having a liability for additional tax in Australia, on top of what they have paid overseas. For other jurisdictions like the USA and the United Kingdom (where personal tax rates are on par with Australian rates) we have still seen clients having to deal with significant issues because they did not clearly understand their tax residency.
Most people understand residency at a basic level. The first test of residence is always whether someone can be said to be residing in Australia in accordance with the plain English meaning of the word. To ‘reside’ in a place, is to dwell permanently there.
Common sense tests apply. For example, if a person does not spend a single day in Australia in a given tax year, it would be difficult to see how a person could be dwelling in Australia. Presumably they would be dwelling somewhere else. But that is where issues can arise. Australia’s tax residency laws operate to deem an Australian to be a resident of Australia, unless they can establish to the satisfaction of the Commissioner that they have a “permanent place of abode” overseas.
The expression ‘permanent place of abode’ has a distinct tax meaning. It is an increasingly difficult concept to apply in the modern world where talent is highly mobile and where people are moving abroad for work opportunities in greater numbers, and more frequently, than ever before.
If you are an Australian that is moving overseas with a significant salary or investment income it is critical that you can demonstrate that you have a permanent place of abode overseas if you wish to prepare your tax returns on the basis that you have become non-resident of Australia.
Once it is established that a person has become a non-resident of Australia – there are a number of implications that arise for assets held by the departing Australian, and a number of matters to watch out for when investing back in Australia.
CST Tax Advisors provides specialist advice in the area of tax residency. Many clients receive initial advice as part of ‘global mobility’ arrangements. These are paid for by their employers. They come to CST Tax Advisors because the advice initially provided to them often lacks clarity based on their personal situation.
By contrast CST advisors understand the challenges of moving – we live it. We are also passionate about giving Australians the certainty they need for either their move overseas, making life easier abroad.
Read more about our Departing Australia Tax Review and get the certainty you need from our specialist tax team.