Today there are well over one million Australians living and working abroad, so it’s clear that we are a very mobile group and this is likely to continue. With increased earning potential and career prospects being key drivers for many to move abroad, it’s important to consider the key question: “Am I an Australian tax resident..?”
Let’s start with the basics
If you are deemed to be an Australian tax resident, then this would create tax implications for not only your worldwide income, but also any investment gains and proceeds received. It’s important to understand that to be deemed an Australian resident, you do not necessarily need to be an Australian citizen and simply having a place to stay overseas will not guarantee your shelter from this.
Two key tests that are applied by the Australian Tax Office (ATO) are the Resides Test and the Domicile Test. The Domicile Test is used to determined where your permanent place of abode is, and if this is in Australia, then you will be deemed to be an Australian resident for tax purposes. The Resides Test is much more complex and will take into consideration your behaviour when you are back in Australia, the intention of your visits, the maintenance of your personal and investment assets and any family or business ties within the country, which could be as simple as membership of your local Rotary Club in Australia.
What if I am deemed to be an Australian tax resident?
One key consideration is to understand how you could be impacted if you were deemed to be an Australian tax resident. We’ll use an example in this case of an Australian expat living and working in Singapore for the past 18 months. Let’s call him John. John earns a reasonable income in Singapore of $200,000 per year, is renting an apartment and enjoying life in the lion city. John is uncertain about how long he’ll stay in Singapore so he has left a lot of his belongings in his previous residential property in Sydney and has not yet rented it out until he determines whether he’ll stay offshore. He also enjoys the flexibility of being able to pop back to Sydney to see his friends and family and stay in his own place.
John is unfortunately deemed to be an Australian resident for tax purposes given he has not made any effort to severe ties with the country, particularly with his property. For the 18 months that John has worked offshore, he has earned $300,000, which he is now instructed that he will have to also pay Australian tax on. Here’s how the numbers look for John:
- Tax already paid in Singapore: $21,150
- Tax payable on income at Australian rates: $67,232
- John’s tax liability: $46,082
Let’s hope John didn’t make any significant capital gains on shares or other mark-to-market assets while he’s been offshore, otherwise he will also be liable for capital gains tax on these gains. Now that the importance of determining your tax residence should be clear, let’s explore what factors will be considered:
The ATO has also set up their own online residency questionnaire, which you can complete at the following link. Please just note that just by passing this test does not guarantee you would not be deemed an Australian tax resident – https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/Residency-tests/
1. Driver’s License
You may wish to consider converting your Australian driver’s license over to an international one. Singapore allows expats to drive on an International License for 12 months after relocating. You can check out more at the Automotive Association of Singapore – http://www.aas.com.sg/
2. Immigration Card
It’s important that you take care when completing your income immigration cards upon entering Australia. The key factor here is the reason for your visit, as well as outlining your country of residence, which is John’s case would have been Singapore.
3. Health Insurance
You should consider either cancelling or suspending your private health cover in Australia while you are living and working abroad. There are a range of competitive health insurance providers for Australian expats living and working in Singapore now.
4. Update Addresses with Share Registries and the Banks
For your Australian bank accounts or any shareholdings, it’s important that you ensure that they have your correct overseas address on file. This also ensures that the correct amounts of withholding tax are applied to your investments or cash holdings.
5. Cancel Australian Memberships
You should look to cancel any existing Australian memberships that you hold, particularly those that you’ve not waited a ‘lifetime’ to join. This would include such memberships as your local charity, sports club or otherwise.
6. Lease Your Australian Property
If you’re living offshore and have kept your Australian property, you may wish to consider renting it out to a tenant. This not only boosts your income and strengthens your cash flow, but it also highlights that you do not intend to return in the short-term. If you are renting out your property on Airbnb or similar platforms, you need to ensure that this is not creating potential tax residency issues for you, particularly if your key motivation is to go back and stay in the property on a regular basis.
7. File Non-Resident Tax Returns in Australia
If you own Taxable Australian assets such as a property, then it’s important that you are still filing your tax returns each year. Ensure that you or your accountant is filing these correctly for you as a non-resident of Australia for tax purposes.
8. Set Up Your New Life Overseas
Join clubs, get involved in the local community, make new friends, sign a long-term lease and enjoy your new life in Singapore or wherever you’ve decided to relocate to. The more ties you can create to your new community, the stronger your case will be in demonstrating where your ‘home’ is.
We hope you find our tips helpful. If you have others you’d like to add, let us know.
To Your Financial Success!
Australian Expatriate Group is the trusted fee-based financial advice provider for Australian expatriates living in Singapore and throughout Asia-Pacific. Licensed by Global Financial Consultants in Singapore, our team is Australian-trained, experienced and qualified, allowing us to provide specialist advice to Australians living abroad.
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