Tax is certainly not the most interesting of topics, and for Australians living overseas, it is often all too easy to become removed from the topic altogether. The same is true for foreigners who are living and working in Australia. But tax-residency is an important issue and we view it as a bit of "housekeeping" for expats that is easily managed from the onset and if not, it can become a bigger issue later on.
How you are taxed in Australia will depend upon whether you are a resident or non-resident of Australia for taxation purposes. Generally, Australian residents will be taxed on their income regardless of where the source is located. To determine whether you are a resident or non-resident of Australia under domestic tax law the following four tests are to be considered:
- Resident according to ordinary concepts
- Domicile test
- 183-days rule
- Superannuation test.
If any of the above tests were to be satisfied, you would be considered an Australian tax resident (unless deemed by the DTA to be a non-resident, see discussion below). This post will consider these tests for determining Australian residency for tax purposes.
1 Resident according to ordinary concepts
Broadly, this test requires that you examine your personal circumstances in light of factors laid down by a number of court cases. The courts start with the dictionary definition of "reside", being: "to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place"
In determining where you reside in accordance with the ordinary meaning, there are several factors to be considered.
Taxation Ruling TR 98/17 provides a detailed consideration of the residency status of individuals who enter Australia. The Commissioner states in the ruling that two primary factors should be considered:
- period the taxpayer was physically present in Australia
- taxpayer's behavior while in
- intention or purpose of presence
- family and business/employment ties
- maintenance and location of assets
- social and living arrangements.
It is important to note that these factors do not have equal weight and no single factor will be decisive in determining residency under this test.
2 Domicile test
A person's domicile in the first instance is the place they were born. You may later have a domicile of choice. Domicile of choice is established by reference to your intention to make a country your home on an indefinite basis.
3 183-day rule
In broad terms, under this test, you are a tax resident of Australia if you are in Australia for 183 days (i.e., half of the year) or more during the income year. This may be either for a continuous period or in breaks and is often referred to as "constructive residence". If on the face of it you satisfy this test, you are required to prove that you usually live outside of Australia and that you have no intention of residing permanently in Australia.
4 Superannuation test
Broadly, under this test, a taxpayer is an Australian tax resident if they receive superannuation from the Commonwealth Government. This rule is in place to ensure that government employees working at Australian posts overseas (i.e., from Australian embassies or other diplomatic posts) are treated as Australian residents.
Determining your tax residency status is certainly not a simple task, and in our experience, we have come across many Australian expats in Latin America who are unsure of their status and whether they have been adequately meeting their tax obligations. Double Taxation Agreement that Australia has can be highly useful to expats and proper legal guidance will help you utilize the benefits. It is important for all Australians living and working overseas that they understand and fulfill said obligations, as it can have a big impact when you decide to return to Australia. The same is true for foreign citizens who have been living in Australia for extended periods. It is always easier to get simple advice from the outset than to avoid the problem only to be faced with a large tax debt that has seemingly appeared out of nowhere.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.