Working overseas doesn’t automatically make you a tax non-resident
Taking a job overseas doesn’t automatically make you a foreign resident for Australian tax purposes.
A recent Federal Court case highlights why your individual circumstances matter. An engineer lived and worked in Dubai for around five years, but he remained an Australian tax resident under one of Australia’s residency tests.
Throughout that period, he maintained significant ties to Australia. He kept his family home in Perth, investment properties, Australian bank accounts and superannuation. His wife and children largely remained in Australia, and he returned to Australia 12 times during the five-year period.
Why does your tax residency matter?
Your Australian tax residency can significantly affect the amount of tax you pay.
Australian tax residents generally pay Australian tax on their worldwide income. In contrast, foreign residents generally pay Australian tax only on income sourced from Australia.
If you incorrectly determine your residency status, you could face unexpected tax consequences.
How does the ATO determine your tax residency?
You can’t rely on a simple time-based rule to determine your Australian tax residency. Spending a certain amount of time overseas doesn’t automatically make you a foreign resident for tax purposes.
Instead, your residency status depends on your overall circumstances. Relevant factors can include:
- where you live
- your family connections
- your assets and financial ties
- your employment arrangements
- your connections to Australia
- your intentions and future plans
This means two people who spend the same amount of time overseas could have different Australian tax residency outcomes.
Check your tax residency before you move overseas
If you currently work overseas, plan to accept an overseas assignment or intend to return to Australia after living abroad, take the time to review your Australian tax residency position.
Checking your residency status early can help you understand your Australian tax obligations and correctly report your income.
If you’re unsure how the Australian tax residency rules apply to your circumstances, talk to us. We can help you work through the residency rules and understand your Australian tax obligations.
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Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
