I'm trying to clarify the wording in the DTAA between Australia and Japan. I'm getting confused with the terminology. If I go, it will be for a couple of years, and will return to Australia (ie will remain an Aust tax resident). For employment income, Article 14 appears to apply: Article 14 INCOME FROM EMPLOYMENT 1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that Contracting State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other Contracting State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned Contracting State if: a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the taxable year of that other Contracting State; b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other Contracting State; and c) the remuneration is not borne by a permanent establishment which the employer has in the other Contracting State. 3. Notwithstanding the preceding paragraphs of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State may be taxed in that Contracting State. My interpretation so far is: 1. Employment income may be taxable in Aust & Japan because I'm doing the work in Japan. 2. It would be taxable only in Australia if (a) I was in Japan for less than 183 days (doesn't apply) (b) doesn't apply because it is a Japanese company; and (c) doesn't apply because it is a Japanese company and not a PE. 3. doesn't apply because I won't be on a ship or plane. Therefore - the income is taxable in both countries (but I could get foreign tax offset) ... Is this correct?
If you remain a tax resident of oz you will be taxed in japan as well as in australia and in australia receive a foreign income tax offset for taxes paid in japan Note that there is a formula to caculate the foreign tax offset available and the offset isnt available until the foreign taxes are PAID In many instances this requires waiting to lodge your return until such time or amending prior year lodged returns once the foreign tax is actually paid
I often encourage people to seek the Commissioners opinion on tax residency. There can be some real strange issues. The DTA isnt the best place to start. There is an online calculator but its not necessarily great especially for 2-3 year engagements etc. I just had a client who left Australia for four months to work in the USA treated as a non-resident and the calculators indicated there were a tax resident each time but I had a belief there were sufficient grounds to argue non-residency may apply. Circumstances were peculiar and it was well worth asking and it simplified the Australian tax affairs a great deal. A matter like tax residency is generally straight fwd to submit yourself provided you are honest and disclose all pertinent facts. It then assures you of your tax treatment. Applying for a private ruling
In cases like this i doubt the ATO would have any issues where you are claiming australian tax residency Its an interesting issue. Never seen a private ruling or heard of any cases where the ATO has tried to argue someone is non resident Where someone was retired and had positively geared properties under 50k i could see how it would benefit the ATO to argue otherwise But all the cases and rulings ive read the other way I doubt you would need a private ruling where you are remaining an australian tax resident
Agree, its less likely a issue where the taxpayer claims to be resident here. Excepting the issue of how much of a foreign tax offset will be allowed which may apply only to tax treaty countries. Taxpayer could overpay tax. I would be concerned a taxpayer may choose the easy option and least cost option v's the correct option. I had one of these cases with a major telco who sent a AU employee to asian nation. 6 month period. All treated as a non-resident didnt seem right. Referred taxpayer back to the Big 4 firm that advises the telco who agreed and had to change all their reporting from local PAYG in that country to an Australian non-resident PAYG summary etc. All this impacted the salary equalisation arrangements etc I imagine with the changed CGT rules the issue of claiming residency may be open to more review when the person has not been physically present. Lodging as a resident to avoid CGT issues could be evasion. And penalties for reckless preparation.
Yes i suspect with the recent changes to the main residence provisions and expats we could well see a few cases up before the courts
For sure. Its probably also a matter the ATO can data match v DFAT records to shoot fish in a barrel. I have recently encountered cases where ATO has disclosed known travel dates for taxpayers...Their systems seem to have this capacity.
And Qak what sort of work will you be doing and where? Lucky to be able to work there, it's a great place to live.
Many years ago, I worked in England for several years. When I lodged my first tax return after returning, I received a please explain for non lodgement. I argued that I was a non resident. I subsequently had to show that I had no residence in Australia, and that I had purchased a residence in England; my subsequent return to Australia was premature, forced by changing circumstances. So the circumstances could be highly individual. If you keep a house in Australia, it's possible that you will never be recognised as a non resident. If the tax is higher in Japan than here, that may not be an issue.
You should avoid being classified as non-res because it sucks. I think you could get away with it even though some posters like @Blacky seemed to give the impression it's beneficial to be classified as non-res.
