Foreign Residency and Tax

There are often questions asked in other threads so I thought I would start one of its very own.

Before we start, let me make one thing perfectly clear...
I am not an accountant, tax advisor or professional of any kind, shape or form. I am not licensed, authorized or permitted to give financial advice. I am not a professional tax advisor. Do not listen to me, follow my tips or think for one minute I know what I am talking about. I don't. Seek your own professional advice.

So - how do I know any of this stuff? For a couple of reasons. 1) as Westminster will confirm I am a finance/numbers nerd, 2) I have lived with this over the last 6years and lived through some significant changes in the system, and 3) I was Audited by the ATO.

Lets start from the beginning. Somewhere in about 2009 the Gillard govt decided that people working overseas were making too much money and not paying enough tax - so she and her cohorts tightened the system. In the past it was simple and calculable - if you spent more than 182days outside of Australia you didn't pay tax on foreign earnings.

They moved this to a more complicated system.
You now need to show evidence that you do not intend to return to Australia. This is not as easy as it sounds. Basically the follow parameters apply;
If you have assets which are not for investment purposes (including if they are in storage) - it shows intent to return.
If you have family (partner/kids) - you are resident
If you have a permanent place to stay (including a permanent room at parents/friends/family) - you are resident.
The list goes on.

You also need to prove you have established yourself in your new country of residence. This means a PPOR (bought or rented - a hotel room is not sufficient). Investments, recreation, friends etc. Most of it is not 'hard and fast' but it all builds a picture.

Being a non-resident can be hugely beneficial in some instances, though not always. The plus is that you don't pay tax on FOREIGN earnings. This does not mean you do not pay tax. You will pay tax in your country of residence and/or the country where you earn money (if these two places are different you may pay tax twice). In addition if you earn any money is Australia this is taxed at 30% (no tax free threshold). Add to that you don't receive any CGT discount on capital gains and you are looking down the barrel of some serious tax payments.

Obtaining permanent residential visas helps - dual citizenship is better. Both of these can be hard to obtain in many circumstances and again - does not guarantee you are a non-resident of Australia.

After leaving Australia you have 5years grace before you need to give up your medicare card. However, if you don't the ATO will be very interested why not.
As an Australian Citizen you have the right and responsibility to vote and in accordance with the ATO website they will not ask you if you are or are not on the electoral role (they will still ask the questions even though they shouldn't).
If you have left the country - be careful how you complete your immigration departure card (and arrival card if you are returning). The ATO will use these against you. The ATO had copies of mine which evidently were all completed differently.

Lets leave it there for now. If you have any other questions Ill do my best to answer. However, again, its best to seek your own specialist advice.
Please also note my experience is based on an Australian leaving Australia. I know very little about temp residents or foreigners coming to Australia.

Blacky

 

No no. Don't get US citizenship. Never.

Get a Cayman citizenship or something like that and work there earning USD. Tax free.

 

Blacky.. I can see your issues however I can also see the lack of understanding too. Residency isnt a choice. However a resident can choose to leave. The key word is permanent, But permanent does not mean forever. It can be three years but it can also be longer or shorter. Visa and other issues can dictate this. INBOUND residents had a test based on days. Not outbound.

The issue of residency should never drive a tax decision. Instead a tax consequence arises from a change of residency. Tax isnt a choice. Its a outcome.

Yes DAPC (Departing Aust Passenger Cards) are used by the ATO. As is so much data.

Careful with thinking citizenship has jack to do with tax. Only two countries in the world do that. One is USA...Other is...Eritrea.

Leaving Australia does not mean departure....Complex issues. So seek tax advice BEFORE making such decisions.

 

Yep being a non-resident sucks if most of your income comes from Aussie rent. Not sure if it's 30%, I think I pay 32% on my income from the first dollar unless the threshold has changed. I've also sold a couple of properties while non-resident and paid a lot of CGT. For most people it's preferable to avoid being classified non-resident as it's likely most of your income will be derived in Oz. The downside is you'll have to live in Oz for half the year and the extra cost of doing that may outweigh any financial benefits of living in SEA or LatAm (generally speaking).

Can you please elaborate on this? Are you saying it's best to say you're returning for tourism/holiday if you want to maintain non-resident status? Do you think being audited was related to being non-res or for other reasons?

 

Returning can affect residency. As can many factors. The bulk of residency tax issues i see are people who think if they fly out they are not residents. Or they think a test for numbers of days applies to departure.

Residency can have strange outcomes. One of my best was a aussie who worked in usa,
Well paid but sued his former employer years later. Neither usa or aus wanted to tax his 48m settlement for employee share proceeds.usa said it was taxable when he was a alien. Aust said her was non res when incurred.

 

In regards to point 1 - I don't believe this to be the case. If you don't settle overseas, it should be reasonably easy to maintain residency in Australia. Though I have never actually tried.

In regards to point two, yes. You need to state that you are now a visitor. On the way out I always tick "Australian leaving permanently". When Audited the ATO already had all my immigration cards on hand.

I was audited as part of the ATO's Data Matching system. Basically they had details of account transactions (inside and outside Australia) and cross referenced this to my tax return.
They kindly sent me a letter comparing the two and then advised, based on this info what I should have declared my income to be (and therefor taxed on).
It was then up to me to argue why I shouldn't pay that amount of tax.
On the bright side it only took 12months and $10,000 in accountant and legal fees for them to declare I had paid the correct amount of tax.

Blacky

 

That isn't close to correct. Under the Gillard Govt the changes to non-residents that hurt the most is the loss of the CGT discount on real property. One of the best things the ATO now offer on their website is TWO different versions of residency calculator.

1. Inbound http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=resident.xr4&go=ok

2. Outbound. http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=residency_leaving.XR4

The trick to using both is to slowly and carefully read every single question and bit of information. For example the word emigrate discusses visa requirements. So if you leave AUS and move to say France and have a temp visa then you retain AUS residency.

 

Being an Oz resident is an awesome thing. You get the $18k tax-free threshold whereas if you're not they tax you from $1, those *******s!! If I was anyone I'd fight as hard as possible to maintain an Oz resident & since the government wants to keep as many people Oz residents as possible that's a good thing.

If you're living overseas & making your income in Oz via rent, shares, or a business then you would want to have the $18k tax-free threshold & never ever get taxed as a non-resident.

Also why anyone would give up their Medicare Card is beyond me. You can always fly back to Oz if you need medical treatment whereas you might be in a country where medical treatment would be very expensive if something half-serious were to come up.

 

Depends entirely on your personal circumstances.
For me it is far better to be a non-resident for tax purposes, and Ive worked hard to ensure this is the case.
Giving up some things (medicare) is hard, but overall it is worth it in the long run. Plus medicare doesn't cover you while you are overseas, so you need comprehensive international medical insurance.
If you return to Oz - you can re-apply for your medicare card without much hassle.

 

It seems that more than one country could claim you as resident ? That would suck. For me its clear I'm non resident. The ideal scenario would be to have no residency anywhere... surely some do it. Or even more perfect, have 2 or 3 identities.

 

There used to be one guy, who I think was a lawyer, who was a 'perpetual traveller' that never stayed in Australia long enough to become a resident for tax purposes. When he was in Australia he stayed in the penthouse of a hotel in Kings Cross (Sebel). He paid no tax anywhere and the ATO chased him hard. Forget his name now, but there was a book written about him.

This was before the laws changed though.

 

You don't even need to be resident of 2x countries to be charged tax multiple times. If the countries don't have a conventional agreement you could get slapped twice.

I thought my case was fairly clear also, but I still got audited - which was painful. In the end they agreed I was right, but I still had to go through it.

Blacky

 

The taxpayer is always out of pocket. I have had clients prove themselves correct and yet when it comes to costs they can be left tens to hundreds of thousands out of pocket. I would like tax reform to shift this onus so a fair outcome doesn't harm a genuine taxpayer.

All appeals etc should be handled by an impartial referee. Too often the ATO throws a unlimited budget at a case when it should walk away.