Should you be reviewing your tax residency?

The COVID-19 pandemic has resulted in many Australians relocating back to Australia after several years abroad.

When COVID-19 first hit, the Australian Taxation Office (ATO) issued sensible and practical guidance that if you are a foreign resident and have been in Australia temporarily for some months due to COVID-19, you will not become an Australian resident for tax purposes if you:

  • usually live overseas permanently; and
  • intend to return there as soon as you are able.

Whilst COVID-19 has created unusual ongoing circumstances beyond any taxpayer’s control, taxpayers must still determine their tax residency status according to the established law, which has not changed.

Therefore, you may need to review your residency status for tax purposes if you:

  • ended up staying in Australia for a period of 183 days (6 months); and
  • have not returned to your former country of residency when you were able to do so.

Whether you are a resident for tax purposes in Australia requires consideration of your individual circumstances. If you intend to return overseas, gathering/generating evidence now may tip the balance in your favour.

Why is residence so important?

Residence is critical in determining the amount of tax you pay.  As a non-resident you are only taxed on Australian-sourced income and capital gains on taxable Australian property. 

However, if you are a resident you are taxed on your worldwide income.  Becoming a resident you are deemed to acquire your worldwide assets at their market value and these assets will then be subject to capital gains tax on disposal. An unplanned change in residence can, therefore, lead to adverse tax outcomes.

If you would like to discuss your tax residency status and the implications of changing your residence, our expert team at Calibre Business Advisory can assist in both documenting your residency status and in managing unintended outcomes.