ATO Expat Attack
Australian taxpayers who have their tax residence in Australia are assessable on their Australian and worldwide income. If you are a non-resident, your Australian source income is usually taxed at non-resident rates of tax, but without Medicare levies.
Some income, such as interest and unfranked dividend income, are not included in your assessable income but instead subject to withholding rates of tax.
Conventional wisdom for Australians earning significant foreign income was that it could be a good idea to be a non-resident. Why? A non-resident earning foreign income is outside of Australia’s jurisdiction to tax. Generally you would be subject to tax in the country that you are resident, and mercifully his often is at lower rates of tax that our politicians tax us, for enjoying life in Australia.
There was a large incentive for taxpayers to be non-residents, particularly starting with the 2010 tax year after the tax law changed from 1 July 2009 when the benefit of the old s23AG of the Income Tax Assessment Act was withdrawn. That old law, allowed most taxpayers who had continuous foreign employment of 91 days or more to have their foreign employment income exempted from Australian tax. Since then, almost all taxpayers must include all income as taxable income.
The only way to escape Australian tax, was to be a non-resident. No exemption required, once you jump through the hoop of the Australian jurisdiction.
The ATO is catching on to this. The ATO does not like losing taxpayers that it can collect tax from, especially those who earn a lot of money from Australia or overseas, suddenly calling themselves non-residents.
You might be surprised just how active the ATO have become.
The ATO conduct various reviews and audits, some random and some targeted to identify those taxpayers who are not doing the right thing with their Australian tax lodgements, whether they are omitting income, overstating deductions, or calling themselves non-residents when really, they are and should be taxed on their Australian and worldwide income.
Back in the 2016 tax year, the ATO disputed the residency of 658 taxpayers.
For the 2019 tax year, for figures up to 31 December 2018 (half the year only), the ATO has disputed the residency of 18,350 taxpayers.
Many taxpayers would not have only just reported themselves to be non-residents. They may have been non-residents for many years.
Having that changed, to be retrospectively classified as resident rather than non-resident, means you may have several years of foreign income suddenly caught up in Australian tax, which is just the start once penalties and interest starts getting added.
Are you concerned about your residency situation? Are you a resident, or non-resident? Have you been contacted by the ATO about your claim of being non-resident?
Have you kept your lodgements up to date, resident or not?
Tax Services Australia has extensive experience supporting Australian expatriates with their residency, changes of their residency, tax advice and tax planning. Make contact with us today, if you need help with these important matters.