Australians To Be taxed On Foreign Income????

Hi everyone,

As I'm a bit of a geek at times, I enjoy reading tax related posts! I am an Australian and US personal tax manager at PwC in Australia. I can assure you most of the above is incorrect (but people were trying to assist) and Australians are not really affected by the ATO's change as of 1/7/09.

In simple terms, leave Aus with the intention of being overseas for more than 2 years and you are a non-resident for tax purposes and therefore not taxable on Qatari source income.

So that should make you all happy :-)

Apart from the Americans :-)

i spoke to ato before coming here and they told me that as aus has no info sharing agreement with qatar they wouldnt know if i was earning or not so not to worry. sounds too good to be true though. AND recently the tax office tracked me down through dfat and sent me a letter re the federal govt bonus for last year so no hiding from big brother!

My sister just forwarded me this email which sounds positive and hopeful for all of us. also there is a free seminar on the 31st which may be helpful. i'll certainly go.

register at:

http://aussieproperty.com/Events/Default.aspx

From: SMATS

Subject: Special Australian Expatriate Budget Update on Foreign Income Taxation

To: "MARTIN JACKSON"

Date: Thursday, May 14, 2009, 8:09 PM

It seems that there is one thing scarier than a A$57 billion Australian Federal Government Deficit.

In the Budget released this week was an announcement that Australians working abroad will now be subject to tax on their foreign income in Australia as a result of changes in Government policy in the Budget.

We have received numerous calls and emails on this so we thought it appropriate to send this special Expat Update to you to clarify the position and keep you informed.

The changes announced in the Budget only affect RESIDENT Taxpayers, that is people living in Australia and commuting for short term employment stints overseas.

For anyone that is genuinely LIVING ABROAD there is no change as you are a NON RESIDENT for Tax Purposes and the old Exempt Income Rules did not apply to you in any case.

If you are unsure if your are living in or out of Australia, it is a simple as where is your “HOME”. If your current “LIFE” (for the next few years roughly) is based out of Australia, then it is highly likely you are Non Resident. If you have doubt please do not hesitate to contact us for clarification.

What the change does mean is that anyone currently living in Australia and enjoying the Tax Exempt status on 90 plus day overseas assignments or on flexible short term overseas assignment, should seriously consider moving abroad after 1st July to become tax Non Resident rather than continuing to commute and be exposed to Australian tax. For those that traveled less than the 90 days there is no change to the previous treatment as they have been taxable in Australia throughout.

I have put a little article up on our website and you are welcome to pass this email around to your friends as well. Click here to view the article.

It shows the importance of coming along to our free Budget Review Seminar to find out more about this and the other changes announced. We are holding these in Asia, Middle East, UK & USA over May & June so check our schedule and reserve your seat by visiting our Events Section.

Fortunately the Budget did not make any changes to the current Tax benefits of Australian Expatriate life, so all the items covered in my planning book "The Aussie Expat - The Luckiest Person on Earth" remain including the claims on Australian property and the ability to accumulate Tax Credits whilst living abroad.

We are offering a Special Budget Promotional Price on my book at A$20 pph until the 30th June (One third off the usual price of A$30) so you may want to get a copy for yourself or a friend that could need the help.

Click here for more information or to order your copy from our SMATS Online Store.

Please note the residence test has subjective elements to it, if you intend not to return, but change your intention at a later time then you may be considered a non-resident during your absence.

Please do not rely on what the ATO says in their guidelines, they are not law and they often misinterpret the law, that why they lose so many cases in Court.

You must satisfy one of these tests to be considered a resident for tax purposes in Australia

1.Primary test – if you reside in Australia according to the ordinary meaning of the word

2. The domicile test Is Australia your permanent place of abode?

3.Statutory tests – You are not outside Australia at least 183 days in each financial year

4. You are member of Commonwealth govt superannuation fund.

And from a practical viewpoint if you lodge a final tax return and are not in Australia for 183 days per year the ATO isnt going to chase you.

I worked in Saudi Arabia back in 2002 and during that tax year I had also earnt australian income so I was required by law to lodge a tax return.

I declared my foreign income to the tax department and I was not taxed on that income. And various accountants I have consulted in the past have also said that you are not taxed on foreign income.

Jonjc,

As they have condensed entire legal battles into pithy paragraphs, it's a bit risky to try to come to some conclusion as to what the definitive reasoning was. Perhaps the engineer could afford a better lawyer?

For my money, both cases hinge up - the intended length of stay in the foreign country (longer in example 35 than 38) and to a lesser degree the attachment (financial, social and otherwise) with the new place of residence, which arguably seem similar in both instances.

Perhaps the airline employee frequently visited Australia, maintained strong family ties and carried out other business in Australia, etc, whereas the engineer left the country and didn't maintain close business or personal ties. Who knows.

The tax office works with smoke and mirrors, so who knows how to interpret it.

Let's wait and see what Ken Henry comes up with as he reviews the tax system before we start to worry about paying more (or any) income tax.

I agree with you Andrew11121. I think I'm a non-resident of Australia so I won't be paying any tax.

Although, I read some of the examples provided in the link you provided http://law.ato.gov.au/pdf/it2650.pdf. What's the difference between Case 35 and 38? I would have thought 38 was a non-resident too? They don't like to make it easy do they.

The information I got, and links I posted are directly off our governments tax website. It gives a direct example of someone who lived overseas for over a year, and was still considered an Australian resident for tax purposes.

Read the website for yourself, rather than articles that attempt to explain if you're still not sure.

Most people aren't eligible to change their domicile, and even if they were, it's your residency, not your domicile, that is taken into account by the ATO when assessing people living offshore.

To summarize, a 'resident' is:

"a person ... who resides in Australia and includes a person whose domicile is in Australia, unless the [ATO] Commissioner is satisfied that his permanent place of abode is outside Australia"

To cut to the chase, "permanent place of abode" is interpreted to mean:

"The Federal Court rejected the Commissioner's argument that a permanent place of abode outside Australia required an intention to live outside Australia indefinitely without any intention of returning to live in Australia in the foreseeable future, other than at some remote, albeit specific, point of time. The Court said that the term "permanent" must be interpreted in the context in which it appears. The Court said that in its context in the "resident" definition a permanent place of abode does not have to be "everlasting" or "forever". It means something less than a permanent place of abode in which a person intends to live for the rest of his or her life. It should be contrasted with a temporary or transitory place of abode outside Australia. ..."

And here's the important part:

"An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a "permanent place of abode" elsewhere. The Federal Court also found that the taxpayer's intention regarding the duration of his stay overseas was only one relevant factor to be taken into account. Of more importance is the nature and quality of use which the taxpayer makes of aparticular place of abode overseas."

The rest can be found at the link I provided above.

The way I see it, the info from andrew11121 and kiwikittens has to be correct. There's no way they'd ask you to change domicile to qualify for tax free status. It seems that they're just closing a loophole for people who aren't paying tax on earnings earned on business trips. People living abroad, not just travelling on trips (like most of you guys I guess) will continue as you were.

If you want some guidance about whether or not you are resident for taxation purposes, here is a good place to start:

http://law.ato.gov.au/pdf/it2650.pdf

This topic was discussed on Insiders (www.abc.net.au/insiders) a few weeks back.

The ammended ruling will impact, it is estimated, about 25,000 Australian taxpayers who are RESIDENT in Australia.

Currently there are a number of high income earners who use the reasoning that whenever they are travelling on business they aren't in Australia, so the income isn't earned in Australia, and therefore it isn't assessable under current ATO legislation. A tax loophole exempts income earned if you are out of the country for over 90 days per year. I guess they must have very good lawyers and accountants to make that sort of stuff stand up to the AAT when their returns are disputed.

Anyway... it does not apply to people who have satisfied the ATO that they are NON-RESIDENT for taxation purposes, which would be the bulk of residents in Qatar.

The important thing to note in this thread is:

The changes will probably make you NO MORE LIKLEY to pay any additional tax. Which is another way of saying that if you are worried that your income earned in Qatar may be taxable under Australian law, then you should have been worried about that when you came here... your income would have ALWAYS been possibly subject to ATO assesment.

All - Per my accountant's advise, we Aussies need to change our domicile to prove our intention to leave Australia permanently to be considered as a non-resident of Australia. Otherwise, we are still viewed as a resident who work abroad to simply take advantage of the tax-free environment, and as a result, expect to be hit upon our return. I guess the UK law is a bit linear than ours...

Cheers,

Don

Yep Tallg is right all we need is to fill in Tax form P85 and declare oneself as a non resident and that exempts one from paying tax in the UK.

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HE WHO DARES WINS

UK non-residents don't pay UK tax on earnings earned abroad. kiwikitten's post from the Australasian Taxation Services above implies its residency that determines tax status in OZ as well, not domicile.

Tallg are you sure you're not meant to be paying tax? In Australia we do have to change our domicile so that you are not longer considered an Australian resident for tax purposes. On one of my above posts I copy and pasted an example directly from our tax website that shows a woman who lived in Japan for 1 year+ and was still considered an Australian resident for tax purposes.

There's a difference between Resident and Domicile. For example, the UK is my domicile, but I am not resident there. Hence I don't pay UK tax. You shouldn't have to change your domicile to gain tax free status.

Thanks Miss X for the clarification; appreciate that. Ah, I can sleep a bit easier tonight :o)

Cheers,

Do

It should be ok. See like I've said, they decide on a case to case basis. It's just if you have a lot of things still in Australia, it will look like you intend to go back there soon, if you know what I mean. I plan on keeping an Australian bank account, because I do still intend to visit Australia for holidays etc, and my parents etc are still there.

Just make it look as convincing as possible that you are making your permanent home outside of Australia.

.... just thought of something; if we have to proof we are the non-resident of Australia with no intention of moving back to Australia (for tax purposes), does it mean we should set up a bank account in British Virgin Island instead of transferring money back to Australia then????

Cheers,

Don

Thanks Miss X and KiwiKitten for the clarification!

On that note, I better start converting all my contact details of my Aussie account to here!

Just on the note of Smats... has anyone used their service? Worth the money?

Cheers,

Don

Another thing someone has recommended is that you notify the banks that you are not a resident for tax purposes.

That is exactly right about whether you are considered a resident or not, depending on where your home is, ie your domicile, as I mentioned above. However simply living in another country does not mean it has become your home. Like I said, it is decided on a case to case basis, and they take things such as bank accounts, property ownership, future obligations etc into account. They have examples on the ATO website. Here is one.

Emily leaves Australia to work in Japan as a teacher of English.

She has a one-year contract, after which she plans to tour China and other parts of Asia before returning to Australia to resume work here.

During her time in Japan, she lives with a family who treat her as one of their own.

She rents out her property in Australia during her absence.

Emily is single. Her parents live interstate, and her brother has moved to France.

Outcome: why is Emily considered a resident?

Even though Emily is residing in Japan, under the domicile test:

* her domicile is in Australia (a resident who has always lived in Australia will generally retain a domicile here when they are absent overseas, unless they choose to permanently migrate to another country), and

* her permanent place of abode remains in Australia.

http://www.ato.gov.au/individuals/content.asp?doc=/content/36280.htm

That's why I say, don't have any specific intentions to return to Australia, and make that obvious in the way you handle your accounts, assets etc so they can not claim that you are still a resident of Australia for tax purposes.

I received a reply from an email to Treasury. Refer link posted below:

http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1538

It seems that if you have done all the things you need to, to declare yourself as a non-resident there should be no problem.

Found this interesting piece of info:

Panic has besieged the Expat community that they may now be subject to tax on their foreign income in Australia as a result of changes in Government policy in the Budget.

The changes announced in the Budget only affect RESIDENT Taxpayers, that is people living in Australia and commuting for short term employment stints overseas.

For anyone that is genuinely LIVING ABROAD there is no change as you are a NON RESIDENT for Tax Purposes and the old Exempt Income Rules did not apply to you in any case.

If you are unsure if your are living in or out of Australia, it is a simple as where is your “HOME”. If your current “LIFE” (for the next few years roughly) is based out of Australia, then it is highly likely you are Non Resident. If you have doubt please do not hesitate to contact us for clarification.

What the change does mean is that anyone currently living in Australia and enjoying the tax Exempt status on 90 plus day overseas assignments or on flexible short term overseas assignment, should seriously consider moving abroad after 1st July to become tax Non Resident rather than continuing to commute and be exposed to Australian tax. For those that travelled less than the 90 days there is no change to the previous treatment as they have been taxable in Australia throughout.

I have put a little article up on our website and you are welcome to pass this email around to your friends as well.

http://aussieproperty.com/News/Default.aspx?search=1¤t=1&id=9b28955f-937e-47bc-aa6a-042afd4c21ef

It shows the importance of coming along to our Budget Review Seminar to find out more about this and the other changes announced. We are holding these in Asia, Middle East, UK & USA over May & June so check our schedule and reserve your seat at http://www.aussieproperty.com/Events/Default.aspx

Regards

Steve Douglas

Managing Director

Australasian Taxation Services Pty Ltd

The Aussie Expat Specialists Since 1995

www.smats.net

Nah Don, the point is you can't declare yourself a non-resident. Actually living in another country does not automatically make you a non-resident of Australia for tax purposes. Only the government can decide for themselves if you are or are not a resident for tax purposes.

On the website it says you can be a resident of two or more countries, but you can only have domicile of one. That means even if you are residing in another country, your domicile, your home (not literally) might still be in Australia, therefore you have intentions to return there.

So that's why I say you have to have no intentions of returning to Australia, and completely settle and establish a home in the other country for them to see that your domicile is not in Australia anymore.

Thanks guys for bringing this to our attention.

Based on the "3" criteria, does it mean we still have to pay tax to the ATO (when we return back to Oz), simply because we slave... urr, I mean work, ourselves in a personal tax-free country , even if you've declared yourself as a non-resident of Australia to the ATO?

If we have to pay tax, that's it, I'm packing my bag and go home!!!!

Cheers,

Don

So no hiding it...

I know some are paid in QR...

But then your taking chance???

I know of one guy who never pay any US tax...

But beter safe than sorry...

IRS can tear your life apart...

I believe in following the law anyway...

Be careful...

You can't teach experience...

Well I think I have decided to stop declaring my income from the moment I leave Australia, and only submit my tax return declaring the money I earned while still in Australia. After that financial year is over, I don't intend to submit another one. If I do ever decide to return to Australia, they can decide then whether they thought I was still a resident.

You can bet that after a few years when they may declare you a non-resident, they wont be paying you a lump sum rebate of all the tax you've incorrectly paid to them while overseas. Better to hold out and pay them the actual amount if there is even one, rather than paying indefinitely and hoping to get it back from them at the end of it all.

If so then tell them only your basic salary. The rest are temporary allowances, which normally are non-taxable

Thanks for the explanation Miss X. :0)

Qatar 06 - it's a new rule? Aah.. and Aussie residents deriving income from overseas cf expats. Interesting.

*****************************************

Don't want no drama,

No, no drama, no, no, no, no drama

The new rule seems to affect Australian residents who derive income from overseas. It doesn't seem to change anything for Australian expatriates.

Cheers

hahaha the word exemption is now bouncing off the inside of my brain. Thanks for that.

The criteria about working in tax free countries such as Saudi Arabia is listed under a title called Non-exemption conditions. In other words your income is not exempt from tax if you meet the criteria of living in a tax free country.

No there is no specific time limit on when you stop being an Australian resident. The government decides whether you are, on a case to case basis. They take into account, whether you own property, have loans in Australia, have bank accounts etc. However having these does not necessarily mean they will consider you an Australian resident, just as owning none of these will not make them consider you a non-resident.

There's a few tests that I think can help determine whether they will consider you an Australian resident still or not. But it's more for people moving to Australia, not for the ones moving out.

The Domicile Test

Resides test

183 Day rule test

My brain seriously starts to hurt when I read the taxation office website.

On second thoughts ... By the way, " Your foreign employment income is exempt from tax if:

1. you are a resident of Australia"

So how is it that being a non-resident can get you exempted from taxation? One of the conditions for exemption is being an Aussie resident.

Plus also the definition of a "resident" would be material and this would depend on the laws of your land. Interesting.

/Alternative is to fire the draughtsman who drafted that multiple negatives provision reproduced in the Australia Taxation Office website. Hope it's no one we know.

*****************************************

Don't want no drama,

No, no drama, no, no, no, no drama

One of the advantages of citizenship in a 3rd world country in my case. :0)

Tq. Very informative, Miss X.

"To be exempt from any tax to Australia you have to prove you are not an Australian resident for tax purposes. Which generally means you can not have intentions to move back to Australia."

Is there a time limit to this for Australia? Eg. after a number of years working abroad, you can be deemed to be non-resident for tax purposes?

"Like I said before, you do not have to pay tax to Australia if you can show you are no longer a resident, and do not intend to be in the near future."

- Meaning returning home in the "distant future" will be ok?

"3. your foreign earnings are not excluded from exemption by the following non-exemption conditions

-the foreign country does not impose tax on employment or personal services income (for example, Saudi Arabia),"

- triple, quadruple or actually more negative statements? "not excluded from exemption" ie. exempted ... by the following non-exemptions??? Should be "exemption conditions", right? Either there's a typo or there's an omission somewhere. Cant read the weblink to double check.

For ease of untwisting the mind:-

- exemption - don't have to pay

- excluded from exemption - have to pay

- not excluded from exemption - don't have to pay

The spanner in the works:

- the following non-exemptions - have to pay

- country of work - no tax, but this being a non-exemption condition - so if this if satisfied, have to pay.

But then, the opening line copy pasted from the website - "Your foreign employment income is exempt from tax if:

.."

Hence, if you are an Aussie resident, working for 91 days or more and your country of work is tax exempt (a non exemption condition), you are exempted when you return home to Australia.

So what's the problem actually?

/Backup plan - move to Canada after minting your money.

*****************************************

Don't want no drama,

No, no drama, no, no, no, no drama

Power to the non believers, it’s a great feeling to have and hold.

thanks missx

I started a topic asking about tax in Austalia a while ago.

http://www.qatarliving.com/node/444050

I have found out that Australians have ALWAYS had to pay tax to Australia if they are working overseas in a tax free country, if they plan on returning to Australia. Most people don't know this and I believe are working in tax free countries, such as Qatar and intend on moving back to Australia once they have saved enough, and are not submitting their tax return.

To be exempt from any tax to Australia you have to prove you are not an Australian resident for tax purposes. Which generally means you can not have intentions to move back to Australia.

The article is completely right when it says that Australians have been paying little tax when they move to other countries, this is because they are being fraudulent and are not declaring their income to Australia. Like I said before, you do not have to pay tax to Australia if you can show you are no longer a resident, and do not intend to be in the near future.

I will copy and paste this from the Australia Taxation Office website.

Your foreign employment income is exempt from tax if:

1. you are a resident of Australia

2. you are engaged in continuous foreign service as an employee for 91 days or more, AND

3. your foreign earnings are not excluded from exemption by the following non-exemption conditions

-the foreign country does not impose tax on employment or personal services income (for example, Saudi Arabia), or

-a law of the foreign country or an international agreement to which Australia is a party, which deals with diplomatic or consular privileges and immunities, or privileges and immunities for people connected with international organisations (such as the United Nations).

http://www.ato.gov.au/individuals/content.asp?doc=/content/28908.htm

Therefore you have to meet the 3 criteria to be exempt. The third criteria states that if any of the following apply to your situation, then you are not exempt. And one of those criteria is that the foreign country does not impose tax. ie like Saudi Arabia. Therefore we do not meet all 3 criteria.

Like I said it all comes down to whether the Australian government decides you are still a resident of Australia, and they decide this on a case to case basis when you go back to Australia. People have been living in foreign countries for 5 years+ and have gone back to Australia and the government has decided they were always considered residents.

Austrailian tax site still says that non-residents without Australian income don't have to file Australian returns:

V\http://www.ato.gov.au/individuals/content.asp?doc=/content/64144.htm&pc=001/002/012/014/005&mnu=44863&mfp=001&st=&cy=1

For US citizens (ehich I am) doesn't matter whether you have a residence back home or not, you still have to declare the fair market value of a residence provided here. You can deduct a portion of it (part will be taxible in any event), but the amount allowed for Doha is only around QR 11,000 a month, if the housing is valued more than that you pay tax on the excess.

Given the fact that tuition paid for your kid's schooling, airfare for the annual trip home, transportation allowences and housing provided are all taxible, a US expat can easily end up paying MORE tax here on the same income than he or she would in the US (where tschooling for you kids would be provided by the State). Depends on your income. If its relatively low, the $91 k allowance can cover or reduce it. If you are more highly paid, you really get no new benefit from the allowence. The only benefit is that you generally pay no US social security tax and no US state tax.

I would not wish this on my many Australian friends. So hopefully the article is wrong. In any case it says it would be effective from July 1 of NEXT year, so you have some time left (see below)

"From July 1 next year, those with an income of more than $250,000 cannot offset losses from unprofitable business activities against salary and wage income. The new test is expected to raise $330million in its first year. Executives considering a stint in the London office will also be hit, with income tax exemptions for foreign employment to be restricted to aid and charity workers, those on certain types of government employment or on projects in the national interest.

Currently, certain foreign employment income earned by Australians working overseas for 91 days or more is exempt from income tax to remove the risk of taxing the same income twice.

However, the Government noted that Australians earning income overseas generally paid little tax to foreign governments. So from July 1, those earning income offshore will be entitled to a tax offset for any income tax paid overseas, but will still be liable for Australian income tax."

with you there. ABout time the Tax laws were changed.

I will hoist that up the flag pole and see who salutes it!!

Thanks for the info.

believe me you need to right a book on tax and sell it out here in the market will earn you alot.

And some people have to include company provided housing for some reason??? Although I believe there is an exclusion for that if you have a property in the states...

Anyway, good ole Bush changed it in 2006 that whatever you have left is taxed at the highest rate 33-35%.

So lets say I get it down to 60K left...

I have to pay 20K...But still better than if it was all taxable...Why I have house in the states so I can deduct the intrest...They talking about doing away with that though...

With Obamas reforme who knows what could be coming...I mean they got to pay for all this stuff somehow...Just like the Ausssies...

You can't teach experience...

Vegas - I thought US expats did have to pay tax when abroad (not on 100% though)?

i got hit with a big tax bill when living in singapore so i just don't submit anymore. try to do everything right and you still get whacked!!!

buy the book "the aussie expat - the luckiest person on earth". it provides some good tips.

What's the current tax percentage in Australia?

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"Every adult of sound mind, should be able to choose to do whatever they want, as long as they cause no harm to others".

However, the Government noted that Australians earning income overseas generally paid little tax to foreign governments. So from July 1, those earning income offshore will be entitled to a tax offset for any income tax paid overseas, but will still be liable for Australian income tax.

You can't teach experience...