In today’s world people are travelling, working and living more and more outside their country of birth. Sometimes when the needs of your business or personal life change, you can find yourself spending a lot of time overseas. Many people are unaware of the tax implications of doing so. This article looks at some of the things that you might need to think about if you are travelling abroad frequently.
Ideally, you would seek tax advice to check whether your tax residency will change if you leave Australia.
If you are spending a lot of time outside Australia, you need to answer two questions:
- Have I ceased to be tax resident in Australia?
- Have I become tax resident in another country?
Ceasing Australian Tax Residence
You will remain tax resident in Australia provided that you satisfy any of the follow tests:
- You ordinarily reside in Australia. Whether you have a home in Australia that is your regular settled residence is a question of fact and degree.
- Similarly, if Australia is the country in which you have your permanent home, you remain resident in Australia, even if you are living overseas temporarily.
- You were actually present in Australia for more than 182 days in the tax year. (However, if you spend more than 183 days outside Australia, that does not necessarily mean that you are not a resident of Australia).
- You are a contributing member of a superannuation fund operated by the Commonwealth government.
Split Year Treatment
You can also be Australian tax resident for only part of a tax year, if you leave or arrive in Australia part way through the tax year. Where you are tax resident for only part of a tax year, the tax-free threshold (currently $18,200) is only available on a pro-rata basis.
Consequences of Ceasing Australian Tax Residency
If you have ceased Australian tax residency, this will affect the rate of income tax that you pay on your Australian source income. As a general rule, you will cease to pay Australian tax on your foreign income once you have ceased Australian tax residency. In addition, there are capital gains tax consequences of ceasing Australian tax residence.
Commencing Tax Residence Overseas
Each country has its own tax rules for deciding when you become tax resident.
For example, if you are spending a lot of time in the UK, you will become a UK tax resident if you meet any of the following tests:
- Spend more than 182 days in the UK.
- You have a home in the UK for 91 consecutive days or more and various other conditions are met.
- You work full-time in the UK for any period of 365 days, with no significant break from UK work, where roughly 75% of the work days are spent in the UK.
- If you have sufficient ties with the UK, and spend sufficient days in the UK, you will also be resident there. Broadly speaking, you will not be UK a tax resident if you spent less than 16 days in the UK, and you will always be UK resident if you spend more than 182 days in the UK in any UK tax year, which ends on 5 April.
You cannot be UK tax resident if you spent fewer than 46 days in the UK in the last three UK tax years. You will not be resident in the UK if you work outside the UK fulltime, and various conditions are met. Different rules apply from the above if a person dies within a tax year. In short, the UK tax residency rules are very complex.
Dual tax residency
Dual tax residency sometimes arises where a person is considered to be resident for tax purposes in more than one country. This can lead to very complex tax law and dual residency issues that are frequently governed by the double tax treaty between the Governments of the countries involved.
Tax residence is a complex area. If you are planning a move overseas or think that you may have already ceased Australian tax residence, planning may be required to determine in which country you may be subject to income tax, capital gains tax and inheritance tax such as in the UK or the US.
I am a chartered tax adviser, international tax expert and have worked as a senior tax manager with a major accountancy firm in the UK. I am now a tax consultant at Nexia Duesburys in Canberra. You may contact me on 02 6279 5400 or email me at firstname.lastname@example.org.