Life, Death and Taxes – Insights by Andrew Henshaw

TAX RESIDENCY: EVERY FACT MATTERS

Whether or not a person is tax resident of Australia is critical issue.

  • if a person is a tax resident, their worldwide income and worldwide assets are subject to Australian tax (subject to any double tax agreements).
  • if a person is NOT a tax resident, only their Australian income and certain assets (direct and indirect holdings of Australian real property) are subject to Australian tax.

WHO IS MOST AFFECTED?

I’ll cut to the chase. Tax residency is a serious risk for two types of people:

  • outgoing taxpayers (particularly Australian nationals that are working and based in low tax jurisdictions).
  • incoming taxpayers (e.g. Foreign nationals that are now living in Australia).

IT’S COMPLEX

Tax residency is complex. There are a number of tests that apply. Some of these tests are extremely grey. For instance, the first tax residency test is determined by whether a person “resides” in Australia (a common law test based on 100+ years of Australian and English case law).

LANDY AND THE COMMISSIONER OF TAXATION

In the recent case of Landy v Commissioner of Taxation [2016] AATA 754 (Landy), Mr. Landy spent the best part of two years living and working in Oman. However, the Administrative Appeals Tribunal (AAT) determined that Mr. Landy was a tax resident for the period in question. One reason for this is that Mr. Landy also maintained significant Australian connections (e.g. family, financial support to his wife, brief trips, and had a home available to him).

 

EVERY FACT MATTERS

This reasoning was rejected. The AAT pointed out that whether a person is a tax resident or not is a fact driven analysis.

Every case turns on its own facts. For outgoing and incoming taxpayers, the fact that your expatriate colleague or friend is or is not a resident does not mean that the same applies to you. Professional advice should be sought upfront (e.g. before moving to Australia or out of Australia). If necessary, a Private Ruling should be sought from the ATO.

It is well known that the ATO (via AUSTRAC) have very strong money tracking powers. The ATO often identify large sums of money being transferred into Australia and assert that the money should be taxed in Australia. Don’t become the next target.

PRECEDENTS DON’T EXIST. EACH CASE IS UNIQUE

Interestingly, it appears that Mr. Landy argued that the decisions in Dempsey and Commissioner of Taxation [2014] AATA 335 (Dempsey) and The Engineering Manager and Commissioner of Taxation [2014] AATA 969 (Engineering Manager).

In those cases, taxpayers in very broadly similar circumstances to Mr. Landy (e.g. Australian nationals living and working in the Middle East), were determined to not be tax residents. Those cases were resounding victories for the taxpayers involved.

Level 12, 360 Elizabeth Street,
Melbourne VIC 3000

Level 12, 360 Elizabeth Street,
Melbourne VIC 3000

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