In Australian tax, a tax resident is taxable on the worldwide income and a non-resident is taxable only on the Australian income. As like New Zealand tax, failure to get your tax residency correctly may cause all your overseas income and salaries being taxed in Australia, even if it has been taxed in the foreign country.
Let’s consider the Australian definition of a tax resident:
- A person resides in Australia under ordinary concepts. (Reside test)
- A person whose domicile is in Australia unless he has established a permanent place of abode outside Australia. (Domicile test)
- A person actually presents in Australia for more than 183 days, unless he has established a permanent place of abode outside Australia. (The 183-day test)
- A person is a contributing member of a commonwealth superannuation fund. (Commonwealth superannuation fund test)
Only Commonwealth government officers can have a commonwealth superannuation fund.
To determine if a person resides in Australia, the following factors will be considered:
- The intention or purpose of the person’s presence in Australia.
- The extent of the person’s family or business or employment ties with Australia.
- The maintenance and location of the person’s assets.
- The person’s social and living arrangements.
Until now, you can see it is very similar to the NZ treatment. However, the major difference is that in Australia, if you can establish a permanent place of abode outside Australia, then you are a non-resident. Because of this, it is fair to say that it is easier to establish a non-resident status in Australian taxation law compare to New Zealand.
So, what is a “permanent place of abode outside Australia”? Actually, it is not necessary to be everlasting. The following factors will be taken into account but none of them are conclusive:
- Intended and the actual length of stay outside Australia (minimum 2 years as a general rule of thumb).
- Whether a fixed home has been established outside Australia.
- Durability of the person’s continuing association with a place inside Australia.
The Double Tax Agreement (DTA) also has an important role when it comes to duel tax residency and double taxation because it has a tie-breaking test which can assign the residency to a specific country.
If you are going to become an expat soon, you need to get tax advises ASAP. Often the expats without proper tax planning before departure discover their errors too late and troubles are inevitable. Please feel free to contact us for assistance.