Tax Residency

What is Tax Residency

Having Australian tax residency means you pay tax in Australia on your worldwide income, this can occur even if you leave Australia. Likewise, if you enter Australia temporarily from another country you may be asked to pay tax in Australia on your worldwide income if you are characterised as an Australian tax resident.

 You shouldn’t have to pay tax in Australia if you do not meet the requirements for Australian tax residency, even if the ATO says that you do! The requirements are non-exhaustive and can often turn on the facts and circumstances of each case. It is important that you get the right advice and don’t fall for the ATO’s ‘broad brush’ approach.  You may even inadvertently trigger a capital gains tax event when you leave Australia. This can leave you with a tax debt even if you have not disposed of the CGT asset.

Working overseas in a low tax jurisdiction

It is common for Australians in various industries to pursue working overseas with the promise of big returns and little tax to pay. Unfortunately, without proper guidance and advice, the ATO may decide that person maintained Australian tax residency whilst overseas, meaning they are taxed as if they never left Australia.

If you work abroad for a period of time (pursuant to a fixed contract) the ATO will assess your tax residency status on your return to Australia which may result in very large tax debts. Similarly, if you enter Australia (regardless of whether you engage in income earning activities) you may be asked to pay tax on your overseas income. The ATO applies very broad and non-exhaustive tests when determining tax residency status so only a carefully constructed strategy by an experienced tax lawyer will prevent you paying tax unnecessarily.

Receiving money from overseas (even when it is a gift)

If you have had money transferred to you from overseas the ATO may ask you to pay tax on it, even if it is a gift. Usually, the Australian Transaction Reports and Analysis Centre (AUSTRAC) detects the transfer and notifies the ATO. The ATO then send you a letter advising that it will amend your assessment to include the transfer as taxable foreign sourced income unless you can, within 28 days, provide a good and sufficient reason why that should not occur.

The taxpayer bears the burden of proof. Whilst the tax is avoidable if the receipt of money was a genuine gift the ATO will not accept that it was a gift without sufficient evidence to prove it. A lack of information and substantiation will simply result in the ATO sending you a tax bill.

How to ensure you only pay what you owe

CharterLaw Legal has extensive experience in dealing with tax residency issues and utilise a solid network of high ranking contacts within the ATO to achieve results that can only be obtained by tax professionals who understand ATO policies and procedures.  Working constructively with the ATO in a way that robustly protects your interests can result in potential ATO criminal prosecutions being avoided and to a negotiated settlement with the ATO.

CharterLaw Legal is part of a professional services group that includes CharterLaw Accounting, and this gives us immediate access to chartered accountants who will undertake the necessary compliance work that must be prepared in order to make an appropriate disclosure to the ATO.

This allows CharterLaw Legal to control the entire process and to maintain confidentiality no third parties are involved apart from yourself, the ATO and your CharterLaw adviser. CharterLaw Legal offers sound technical confidential advice, which is bound by legal

professional privilege, to ensure that your rights are protected and what you tell us stays with us.

Will the ATO prosecute me

If you have been found to have deliberately avoided your tax obligations and you do not effectively engage the ATO in meaningful negotiations, you may be referred to the Commonwealth Director of Public Prosecutions for criminal prosecution. Even in the absence of direct evidence against you a charge may be proved when the facts and circumstances support an inference that you acted with an intentional disregard for the law. Such findings can lead to a custodial sentence (prison) being imposed by the court. It is our aim to avoid this by protecting your rights.