Proposed expat tax rule changes

[Mattg]

The Australian government is apparently considering changing tax rules to make it much harder for Australian expats and citizens/PRs living and working overseas for long periods to avoid paying income tax in Australia.

There are a few changes being proposed here. One is a "factor test" to determine tax residency. If at least two of the following factors apply, you'd be considered an Australian resident for tax purposes: right to live in Australia, spouse or dependent children in Australia, Australian accommodation and economic interests in Australia.

There's also a proposal that expats would be considered Australian residents for tax purposes if they spend more than 45 days/year in Australia. And another proposal, "adhesive" tax residency, would mean you would still be considered an Australian resident for tax purposes for 3 years after leaving the country.

Sounds really harsh. Hopefully this won't pass as law as it would affect most expats. Not sure how double tax treaties would come into it.

Expat tax shake-up stokes fears of ‘harsh outcomes’

The biggest shake-up in decades of the rules that define who is and isn’t an Australian tax resident has stoked simmering resentments in the expat community.

www.afr.com

 

[ZigZagWanderer]

I saw this, but it's paywalled so couldn't read it. I tried to find details on the web, but they're are none that I can find.

If implemented, this would make it hellish for me. I have kids here and want to spend at least 3 months a year here, and still keep my house for my disabled wife to live in (she has dementia and cannot 'own' it herself).

 

[dajop]

The 45 day test is difficult to meet during a pandemic. If you come back you stay more than that due to the cost - and time in HQ.

Article is paywalled - what is the accommodation and economic interests test? Expats not allowed to maintain investments in Australia?

Likely to go through. Don’t underestimate how popular such moves would be. Expats are a scourge on Australia. Well if you look at a lot of the comments whenever “returning Aussies” are mentioned. Government had found a very popular punching bag here. Will happen.

 

[Mattg]

Regarding the paywall - can you try Googling the headline?

@dajop The article doesn't really go into the details, but I think that "accommodation" refers to property ownership and "economic interests" refers to ownership in a business. Not sure if owning shares on the ASX would count.

I know a lot of expats are really angry about this proposal.

 

[RooFlyer]

Possibly relevant to this is whether the country the Aussie expat is otherwise 'resident' in has an income tax treaty with Australia. Depending on the details of the individual treaty, in general it means that if you are taxed in one country, you are given a rebate or equivalent on the tax you are assessed in the other. There are about 40 such countries

Income Tax Treaties | Treasury.gov.au

Treaty information and implementation 1 Multilateral Instrument2 Withholding on Managed Investment Trust distributions Country or Jurisdiction Text and information Signature Explanatory Memorandum

treasury.gov.au

Mind you, its not simple to manage a treaty arrangement. When I lived in Canada for a few years, I had to manage Australian tax (Financial year), Canadian federal tax (calendar year) and Quebec income tax (calendar year). The accountants did well out of it! When I moved back to Australia, it took 2 years to work the Canadian elements out of my tax life.

I think all citizens of the USA have to pay tax, or at least have it assessed to Uncle Sam, no matter where they live, or for how long.

 

[Mattg]

I think all citizens of the USA have to pay tax, or at least have it assessed to Uncle Sam, no matter where they live, or for how long.

It looks like Australia is trying to go down a similar path, and I don't like the sound of it at all.

 

[dajop]

Regarding the paywall - can you try Googling the headline?

@dajop The article doesn't really go into the details, but I think that "accommodation" refers to property ownership and "economic interests" refers to ownership in a business. Not sure if owning shares on the ASX would count.

I know a lot of expats are really angry about this proposal.

Tried the incognito tabs trick and it worked. We would fail the test as we have property investments and have the right to live in Australia. Wouldn’t be great but as long as it only involves “top up” taxation might be manageable, but if for example you were here in Singapore with a couple of kids and on a “local package” that doesn’t include schooling and not very senior would be totally not worthwhile due to schooling and real estate costs. Better off staying in the hermit nation.

 

[RooFlyer]

Tried the incognito tabs trick and it worked. We would fail the test as we have property investments and have the right to live in Australia. Wouldn’t be great but as long as it only involves “top up” taxation might be manageable.

The "Double Tax Treaty" between Oz and where I believe you reside sounds quite useful. But maybe they could work on the name of it

 

[dajop]

I guess the devil will be in the detail. For very senior expats (on assignment) the company usually does tax equalisation anyway ... will have little effect (these also usually come with cars, housing etc too). Will more effect those who move overseas on their own volition and those who move with a company but get employed as a local would (no housing, schooling, allowances etc ).

 

[ZigZagWanderer]

A

Tried the incognito tabs trick and it worked. We would fail the test as we have property investments and have the right to live in Australia. Wouldn’t be great but as long as it only involves “top up” taxation might be manageable, but if for example you were here in Singapore with a couple of kids and on a “local package” that doesn’t include schooling and not very senior would be totally not worthwhile due to schooling and real estate costs. Better off staying in the hermit nation.

Any income derived in Australia has to pay tax anyway. The rates for non-doms is also quite punitive, and you have no tax-free allowance either.

 

[dajop]

A

Any income derived in Australia has to pay tax anyway. The rates for non-doms is also quite punitive, and you have no tax-free allowance either.

Land tax implications too if you don’t sell the family home (depending on the value of the land, but with current land prices any house in a major city would reach the threshold, even lower density flats could.)

 

[theblank]

If implemented, this would make it hellish for me. I have kids here and want to spend at least 3 months a year here, and still keep my house for my disabled wife to live in (she has dementia and cannot 'own' it herself).

Under current legislation why are you not considered a resident? i understand the 6 month rule but that is not the only consideration. Seems that you have not cut your ties with australia at all


I do have one friend thats worked around that through a few layers of trust companies but others have not done that and they all got considered resident

 

[AisleSeat]

I think all citizens of the USA have to pay tax, or at least have it assessed to Uncle Sam, no matter where they live, or for how long.

Yes, Mrs AS has to file tax ever year. The only benefit after all these years here, is that she's received 3 stimulus cheques in the last year.

 

[ZigZagWanderer]

Under current legislation why are you not considered a resident? i understand the 6 month rule but that is not the only consideration. Seems that you have not cut your ties with australia at all


I do have one friend thats worked around that through a few layers of trust companies but others have not done that and they all got considered resident

Because my wife, from whom I am separated (we can't have a relationship, nor can we get a divorce because she is not capable), wants to live here in our existing home. Our children are adults, so I have no actual dependents here.

I also have a hefty (very low rate) mortgage on the house, which makes it impossible to give to my kids or put in a special disability trust for my wife.

Basically this means I'm going to be classed as a tax-resident until she dies or goes into a home, which could be decades. This is even though I have, and live in, property in Europe, and quite possibly Malaysia in a few years.

My only hope is that because have no income at all in oz, and I don't have to lodge a tax return, they'll ignore me.

 

[Mattg]

Because my wife, from whom I am separated (we can't have a relationship, nor can we get a divorce because she is not capable), wants to live here in our existing home. Our children are adults, so I have no actual dependents here.

I also have a hefty (very low rate) mortgage on the house, which makes it impossible to give to my kids or put in a special disability trust for my wife.

Basically this means I'm going to be classed as a tax-resident until she dies or goes into a home, which could be decades. This is even though I have, and live in, property in Europe, and quite possibly Malaysia in a few years.

My only hope is that because have no income at all in oz, and I don't have to lodge a tax return, they'll ignore me.

If you're not currently classified as an Australian resident for tax purposes, I think you may be able to avoid doing the "factor test" if you spend less than 45 days per year in Australia. But you might need to get independent advice on that as I'm not 100% sure.