If you are considering any investments or business dealings offshore: then international tax services becomes top-of-mind. The interplay of taxation and tax administrations across countries can create tax opportunities for the smart tax accountants and tax headaches for those with poorly structured tax advice.
So when engaging with your Perth tax accountant, the most fundamental tax issue should be considered first – understanding your tax residency. And when asking the questions – am I a tax resident for ATO purposes – you should look at a range of issues to understand the impact of offshore taxation.
And if you change your tax residency the questions become more complex again.
Your tax residency and your immigration status are not connected – however your tax residency could be influenced by your immigration status. So you can be an Australian citizen and not be a tax resident. And you can have permanent residency in Australian and not be a tax resident. And you can be illegally overstaying your visa requirements and be an Australian tax resident.
However, the actions you take towards getting a permanent residency might be considered when looking at your tax residency. And the mere act of applying for a permanent residency in Australia could be important when understanding your intention to become an Australian tax resident.
A tax resident can be an individual. It can also be another entity like a unit trust, a discretionary trust, a company or a partnership.
If a trust has a trustee that is an Australian tax resident then the trust will become an Australian tax resident. Alternatively, if a company was created in Australia it will become an Australian tax resident. Or if the effective place of management is in Australia – for either the company or the trust – then that company or trust will become an Australia tax resident.
As am individual the tax law defines a resident, unhelpfully, as a person who resides in Australia. The ATO then go and give, with the release of Tax Ruling TR 2022/D2, 6 factors which will impact the understanding of your tax residence.
- The period of time you were physically present in Australia.
- The intention or purpose while in Australia.
- The behaviour while in Australia.
- Family, business or employment ties.
- Maintenance or location of assets.
- Social and living arrangement.
Of course with increasingly mobile families and the ease of international travel: understanding tax residency for some becomes very difficult. A person might have dual citizenship, families in two countries and homes in two countries as they spend the summer in the northern hemisphere and summer in the southern hemisphere.
In many situations a person can become a tax resident in two countries at once. And, in that instance the person should then go to the Australian Double Tax Agreements with the other country to look into the tiebreaker rules so that a person has only one tax residency.
Of course, for some structures, like trusts, the Double Tax Agreement does not cover those persons. So, applying for tax rulings on these situations might be necessary.
Why is it important to understand tax residency?
The reason why the question about tax residency is important is that the country in which you are a tax resident is able to tax your worldwide income.
If you are a tax resident of Australia then you will be taxed on your worldwide income – income from Australia and income from overseas. If you are not a tax resident of Australia then you will only be taxed on your income that is derived from Australia. So if you are a tax resident of New Zealand the ATO will only seek to tax income that is generated from Australia – things like rental income from properties located in Australia and business income that is generated from a permanent establishment in Australia.
For Australians that are not an Australian tax resident then certain types of income might suffer withholding tax and not need to lodge an Australian tax return. However, like taxation, this is not always the case – franked dividends are not subject to a withholding tax.
When considering your tax residency and the impact of offshore taxation it is important to speak to a tax advisor with practical knowledge. The administrative tax regimes can vary greatly to greatly and have a practical impact that can far exceed any textbook application of that countries law. At Westcourt we are part of Geneva Group International – with more than 29,000 professional advisors worldwide – so we can access local know how in both Australia and offshore to give you a single piece of advice to give you the best tax outcome for your affairs.
Give our focus only on families in business, our deep international network and our proven technical excellence in taxation – we are a natural choice for the global business family – so why not give us a call?