Are you at risk of double taxation when doing business in Australia?

The global citizen has never had a more evident presence. Currently, even in a country as geographical removed from neighboring nations as Australia, many Australian’s have a foot in the door of another country. This might be due to the obligations of a job, a burgeoning business tapping into an overseas market, or simply a desire to try a new lifestyle in a new place. Whatever the reason, the fact that you can live and work in more than one country not only opens doors to exciting new opportunities, but it also has consequences on your tax.

Australia and Korea, or the UK, or New Zealand, or anywhere else, Australian expats have new opportunities in the tax arena also.

Long-held precedent on the tax liability of expats looks to have been unsettled, with the recent resolution of a court case giving more leeway for Australian expats to argue that they are not taxable residents in Australia even if they have assets here. In Harding v FC of T 2018 ATC 20-660, the ATO initially claimed a win when the Federal Court ruled that you needed to have a fixed or particular abode overseas to be exempt from tax residency status in Australia. This potentially meant that many Australian expats living offshore could be made to pay tax in Australia, but then the court rejected the strict interpretation of a permanent abode in an appeal. In Harding v FC of T 2019 ATC 20-685, a permanent place of abode was ruled to have a broader definition, even to include the intention of person to commit to a life overseas by moving from place to place within an overseas city or country. This meant many expats could breathe a sigh of relief; there was broader scope to avoid being pinned with Australian tax residency.

But this court case does not mean Australian’s who live and work overseas can be oblivious of the potential risk of double taxation. What are the conditions for double taxation in the case of dual residency? Briefly, you need to start with exploring the tax jurisdictions that might impact you. Explore any double tax treaties. Examine if the overseas tax rate is higher or lower than that in Australia. Consider the balance of your personal and business taxation. You may find that you need to submit a tax return in one country, pay tax in the other, and receive a credit from the first country for tax paid.

You then need to consider whether you cannot be claimed to be a resident in Australia for tax purposes. There are risks that the ATO may argue otherwise, but since it is a grey area, you and your tax advisor have room to make a case, particularly in light of recent developments such as the Federal Court ruling listed above. The documentation of your intent to live and presence overseas, and the nature of your taxable assets in Australia, should form the basis of your case that you are not a resident in Australia for tax purposes, even though you still have some degree of presence here. You need to consider your time spent overseas, residency type overseas, and the impact of asset changes to your home ownership and lifestyle over a period of time.

Paying tax in two countries can hit you hard, and may well make your choice to live in Australia and overseas no longer worthwhile. So a smart evaluation of double tax treaties, conditions for tax credits, and the criteria to prove you are not a taxable resident of Australia will do wonders to give you peace of mind when you are a global citizen.

Calibre Business Advisory invests more time than most firms into finding solutions for our clients. Contact our business advisors and tax accountants to discover new options for your business in Australia and beyond.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.