Australians are great travellers. That should come as no surprise, travel anywhere in the world and it won’t be long before you hear that familiar accent. For some Australians, going overseas means more than a holiday and each year, thousands of Australians leave the country to start a new life overseas.
In many cases, people assume that as soon as they leave Australia, they will cease to be resident here and will not need to account for tax on their overseas earnings. That view is often simplistic and wrong. The ATO has applied the residency rules to a number of the common scenarios for those leaving Australia and they state:
- If you leave Australia temporarily and do not set up a permanent home in another country, you are generally an Australian resident for tax purposes
- If you leave Australia permanently, you are generally treated as a foreign resident for tax purposes from the date of your departure
Those examples are very black-and-white. This kind of clear cut scenario is probably the exception rather than the rule. In a straightforward case, where you leave the country for good and intend never to return, you will indeed become non-resident as soon as you leave.
When determining if your client has become non-resident, you need to take into account a host of factors including:
- whether they intend to return permanently to Australia
- the roots they have put down in their new country, such as buying a home or marrying
- the duration and frequency of any visits to Australia
- continuing family connections with Australia, particularly the presence of spouses and children
- continuing financial, social and emotional ties to Australia, for instance maintaining assets such as a family home or car, keeping children in an Australian school or getting income paid into an Australian bank account.
As such, it often isn’t enough to simply get a job overseas, hop onto the plane and tick the box on the tax return that the client is now non-resident. To get a picture of potential difficulties in proving non-residence, we need to look at a couple of cases which progressed to the Administrative Appeals Tribunal (AAT).
In cases below, the taxpayer claimed to be non-resident and in both cases the ATO challenged that claim. In one case, the taxpayer succeeded in their claim before the Tribunal and in the other, the ATO’s challenge was successful.
In Case 9/2014 (2014 ATC ¶1-071), the AAT considered the residency position of an engineer working in the oil and gas industry who had worked overseas since 2004 and returned to Australia on 29 April 2011. While the taxpayer’s wife and children lived in a house in Perth, co-owned by the taxpayer and his wife, the taxpayer himself lived alone in a rented house in Oman. For the most part, the taxpayer was not physically present in Australia nor did he intend to live in Australia until he returned to Perth permanently to resolve family issues in April 2011. Prior to that, he worked and lived in Oman and it was his intention to continue to work and live in Oman subject to his employment contract being renewed. The taxpayer’s priority was his work and career, outweighing his family ties. Finding for the taxpayer, the Tribunal accepted that the taxpayer’s permanent place of abode was outside Australia until he returned permanently in April 2011. He had established his fixed and habitual abode in Oman and intended to continue to live there for as long as his employment contract continued.
This case can be contrasted with that of Shord v FC of T (2015 ATC ¶10-393), which dealt with similar questions but, based on the facts, reached very different conclusions. In Shord, the taxpayer claimed to be a non-resident of Australia between 1999 and 2011. The Commissioner issued assessments for the 2005/06 to 2010/11 income years on the basis that he was Australian resident throughout that period. The taxpayer argued that he was non-resident. At various times, he worked overseas as a saturation diver, diving superintendent and diving supervisor on offshore platforms, barges and other vessels for foreign companies. The AAT held that in each of the income years, the taxpayer was a resident of Australia within the ordinary meaning of that term and alternatively, his ‘‘domicile’’ was in Australia. The Tribunal found that he had ‘‘no permanent place of abode’’ outside Australia. The taxpayer spent significant amounts of time between 2005 and 2009 living with his wife at the property he owned with her in Western Australia and from 2009, he spent nearly all his time there (in 2010 and 2011, for instance, he spent 305 and 311 days respectively in Australia); he transferred his earnings into his Australian bank account and identified himself on incoming passenger cards as a resident of Australia. He undertook trips to the UK but only as holiday or to visit friends. There was no evidence that he owned personal property of any kind anywhere other than Australia. His physical, emotional and financial ties to Australia throughout the period were significant.
For a better understanding of how tax impacts those coming and going from Australia, join the Tax and Residency: Arrivals and Departures webinar on August 31.