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Finally, some journo pen this topic down to warn Aussie taxpayers.
Needless to say, I will state on my departure card that I am leaving Australia permanently and register myself as an overseas voter so that I am NOT AN AUSTRALIAN RESIDENT for tax purposes.
Move out of my house and rent it out; sell my car; leave only one bank account open; don’t leave any personal belongings behind; let my insurers and clubs know of my overseas posting; close internet and phone accounts; and if I should return for a visit, stay in a hotel.
Read more below.
BEN HURLEY
Working for a few years in a country with low taxes can sound like a great way to put aside some money. Until you look at what a tax nightmare it can turn out to be when you return to Australia.
The difference between paying a $20,000 tax bill and paying nothing comes down to a subjective decision over whether you severed your Australian ties.
The Australian Taxation Office will look at things such as whether you sold your car, rented out your house, sold your furniture or closed down most of your bank accounts. Too many family visits while you were abroad could be a deal-breaker. Documenting these things before you leave could save you a lot of money.
The Weekend Financial Review spoke to an Australian resident who has extended her mortgage and taken an extra job during her annual leave to pay an unexpected tax bill that came two years after she returned from a working trip overseas. The bill was well in excess of $10,000.
“I’m in my work holidays, working to pay the tax man,” said the worker, who asked to remain anonymous. “I haven’t had a holiday for a year.”
Several years ago she saw an advertisement from an agency claiming she could earn tax free dollars in the Middle East in her area of employment.
She moved out of her rental home, sold her car, quit her job and got a three-year visa to the country. She worked a year on contract and then returned. The work conditions were good and the hours were roughly the same, but the pay was less than she could get here. It was the lower living costs and the favourable tax rules that made it worthwhile.
Two years after she returned to Australia, the ATO audited her and some of her co-workers claiming they needed to pay amounts ranging from $15,000 to $20,000. Her colleagues, who had both travelled for at least six months after their one-year contracts finished, appealed successfully and paid nothing. But she returned immediately after her contract, and her appeals were unsuccessful.
“They’re saying it’s because I had the full intention to come back,” she told The Weekend AFR.
“But I had my options open. I had no car, no house, I had a three-year visa. I could have stayed much longer if I wanted. But they said it was because I was on a contract and was coming back to the country anyway.”
To say the least, it soured the experience.
“After the Australian tax, in that year I would have earned less than my brother working in a supermarket,” she said.
Work trips to the Middle East have always been fraught. Until about three years ago, Australians were exempted from paying any Australian tax during an overseas working trip, as long as they paid some form of tax overseas. Because many Middle Eastern countries charge no income tax at all, that exemption didn’t apply.
But the issue of whether you are an Australian resident for tax purposes became a pointy one in July 2009, when budget changes meant all income earned overseas was included in Australian tax returns. Now, even if you’ve paid some tax, you are asked to top it up if it’s less than what Australia would have charged.
It suddenly became important for people working abroad to take extensive measures to cut themselves off from Australia, so they could claim they were non-citizens for tax purposes and save enormous amounts of time and money.
“Australian tax residency is a bit like chewing gum on your shoe,” says Paul Brassil, a tax partner at PwC.
“After you have it, it’s hard to get rid of it. The risk here is a lot of people underestimate the number of factors you have to attend.”
He says you are fairly safe if you leave Australia for at least two, or even better, three years. For shorter stints, a range of things will be considered. It will work in your favour if you move out of your house and rent it out or sell it; sell your car and don’t lend it to a mate; close down all but one of your local bank accounts; don’t leave any personal belongings behind; put yourself on the overseas voter electoral role; let your insurers and clubs know you’re going overseas; close your internet and phone accounts; and if you go back to visit your parents, stay in a hotel, not in a room they have kept for you. One person’s case was soured because of ongoing payments for a boat mooring.
And, most importantly, document it all – including receipts and even photos of your garage sale.
“It’s the weight of evidence,” Brassil says. “The onus is absolutely on the taxpayer to prove your case. If you don’t do the hard work, the ATO will say: we’re not satisfied, here is your assessment.”
Allan Sneddon is one of the latest people to get burned. In August this year, the Administrative Appeals Tribunal of Australia ruled he had to pay a $52,000 tax bill following a 20-month working stint in Qatar, employed by an Australian company, Fluor Australia. He was judged to have remained an Australian resident for a range of reasons. He ticked the “leaving temporarily” box on his departure card. He started but didn’t finish renovating his house and didn’t rent it out. He kept his car in the garage and he continued to pay his mortgage, car loan, insurance, and internet bills.
Being a non-tax-resident not only saves money but a lot of hassle. Australian tax residents working overseas have to first do their tax return in the country they are placed, and work out what social contributions can be credited against the Australian tax bill. Most countries don’t have a financial year ending in June so the taxable periods don’t align.
It is common to hire an accountant in each country to do the work, who will need to communicate with each other. And the tax paid would be subject to currency fluctuations. It can be extremely complicated for people who aren’t part of a large company that does it all for them.
Elizabeth Lucas, tax partner at Grant Thornton Australia, says the changes pushed people towards longer assignments overseas and breaking their ties to Australia. For tax residents things get very complicated. “To claim a credit in one country for tax paid in another country, you have to have already paid the tax. Sometimes you can end up with, from a cash flow perspective, having to pay tax twice and then claiming a refund.”
If you get an unexpected audit, Brassil says you can save a lot of money by going on the front foot at the first letter stage. If you admit you were a resident, voluntarily disclose all your income and save the ATO doing an audit, you could get an 80 per cent reduction in your penalty interest rate, potentially from 25 per cent down to 5 per cent.
The Australian Financial Review
Needless to say, I will state on my departure card that I am leaving Australia permanently and register myself as an overseas voter so that I am NOT AN AUSTRALIAN RESIDENT for tax purposes.
Move out of my house and rent it out; sell my car; leave only one bank account open; don’t leave any personal belongings behind; let my insurers and clubs know of my overseas posting; close internet and phone accounts; and if I should return for a visit, stay in a hotel.
Read more below.
BEN HURLEY
Working for a few years in a country with low taxes can sound like a great way to put aside some money. Until you look at what a tax nightmare it can turn out to be when you return to Australia.
The difference between paying a $20,000 tax bill and paying nothing comes down to a subjective decision over whether you severed your Australian ties.
The Australian Taxation Office will look at things such as whether you sold your car, rented out your house, sold your furniture or closed down most of your bank accounts. Too many family visits while you were abroad could be a deal-breaker. Documenting these things before you leave could save you a lot of money.
The Weekend Financial Review spoke to an Australian resident who has extended her mortgage and taken an extra job during her annual leave to pay an unexpected tax bill that came two years after she returned from a working trip overseas. The bill was well in excess of $10,000.
“I’m in my work holidays, working to pay the tax man,” said the worker, who asked to remain anonymous. “I haven’t had a holiday for a year.”
Several years ago she saw an advertisement from an agency claiming she could earn tax free dollars in the Middle East in her area of employment.
She moved out of her rental home, sold her car, quit her job and got a three-year visa to the country. She worked a year on contract and then returned. The work conditions were good and the hours were roughly the same, but the pay was less than she could get here. It was the lower living costs and the favourable tax rules that made it worthwhile.
Two years after she returned to Australia, the ATO audited her and some of her co-workers claiming they needed to pay amounts ranging from $15,000 to $20,000. Her colleagues, who had both travelled for at least six months after their one-year contracts finished, appealed successfully and paid nothing. But she returned immediately after her contract, and her appeals were unsuccessful.
“They’re saying it’s because I had the full intention to come back,” she told The Weekend AFR.
“But I had my options open. I had no car, no house, I had a three-year visa. I could have stayed much longer if I wanted. But they said it was because I was on a contract and was coming back to the country anyway.”
To say the least, it soured the experience.
“After the Australian tax, in that year I would have earned less than my brother working in a supermarket,” she said.
Work trips to the Middle East have always been fraught. Until about three years ago, Australians were exempted from paying any Australian tax during an overseas working trip, as long as they paid some form of tax overseas. Because many Middle Eastern countries charge no income tax at all, that exemption didn’t apply.
But the issue of whether you are an Australian resident for tax purposes became a pointy one in July 2009, when budget changes meant all income earned overseas was included in Australian tax returns. Now, even if you’ve paid some tax, you are asked to top it up if it’s less than what Australia would have charged.
It suddenly became important for people working abroad to take extensive measures to cut themselves off from Australia, so they could claim they were non-citizens for tax purposes and save enormous amounts of time and money.
“Australian tax residency is a bit like chewing gum on your shoe,” says Paul Brassil, a tax partner at PwC.
“After you have it, it’s hard to get rid of it. The risk here is a lot of people underestimate the number of factors you have to attend.”
He says you are fairly safe if you leave Australia for at least two, or even better, three years. For shorter stints, a range of things will be considered. It will work in your favour if you move out of your house and rent it out or sell it; sell your car and don’t lend it to a mate; close down all but one of your local bank accounts; don’t leave any personal belongings behind; put yourself on the overseas voter electoral role; let your insurers and clubs know you’re going overseas; close your internet and phone accounts; and if you go back to visit your parents, stay in a hotel, not in a room they have kept for you. One person’s case was soured because of ongoing payments for a boat mooring.
And, most importantly, document it all – including receipts and even photos of your garage sale.
“It’s the weight of evidence,” Brassil says. “The onus is absolutely on the taxpayer to prove your case. If you don’t do the hard work, the ATO will say: we’re not satisfied, here is your assessment.”
Allan Sneddon is one of the latest people to get burned. In August this year, the Administrative Appeals Tribunal of Australia ruled he had to pay a $52,000 tax bill following a 20-month working stint in Qatar, employed by an Australian company, Fluor Australia. He was judged to have remained an Australian resident for a range of reasons. He ticked the “leaving temporarily” box on his departure card. He started but didn’t finish renovating his house and didn’t rent it out. He kept his car in the garage and he continued to pay his mortgage, car loan, insurance, and internet bills.
Being a non-tax-resident not only saves money but a lot of hassle. Australian tax residents working overseas have to first do their tax return in the country they are placed, and work out what social contributions can be credited against the Australian tax bill. Most countries don’t have a financial year ending in June so the taxable periods don’t align.
It is common to hire an accountant in each country to do the work, who will need to communicate with each other. And the tax paid would be subject to currency fluctuations. It can be extremely complicated for people who aren’t part of a large company that does it all for them.
Elizabeth Lucas, tax partner at Grant Thornton Australia, says the changes pushed people towards longer assignments overseas and breaking their ties to Australia. For tax residents things get very complicated. “To claim a credit in one country for tax paid in another country, you have to have already paid the tax. Sometimes you can end up with, from a cash flow perspective, having to pay tax twice and then claiming a refund.”
If you get an unexpected audit, Brassil says you can save a lot of money by going on the front foot at the first letter stage. If you admit you were a resident, voluntarily disclose all your income and save the ATO doing an audit, you could get an 80 per cent reduction in your penalty interest rate, potentially from 25 per cent down to 5 per cent.
The Australian Financial Review
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