The key change for Australian expats announced in the 2021-2022 Federal Budget was the proposed changes to the Australian individual tax residency rules.
The proposed changes to the residency rules are based on the Board of Tax recommendations made in March 2019. The Board of Tax recommended that the current rules are outdated, overly complex and need to be modernised to reflect modern work practices.
The Board of Tax recommended a two- step approach.
The proposed rules also outline an ‘overseas employment rule’ that would apply to an individual who relocates overseas for employment. In this instance, the individual may be considered a non-resident from the time they relocate overseas where they are employed overseas for more than 2 years and have permanent accommodation overseas. They would also need to spend less than 45 days in Australia under the proposals.
The key change under the proposals impacting expats is that where an individual spends 45 days or more in Australia, and they have Australian connections, they may be considered a tax resident of Australia. This impact may be significant- especially for taxpayers who reside in a country where Australia does not have a tax treaty (for example, Hong Kong or the UAE).
If the new rules are implemented, it will be even more important to consider the impact under the relevant double tax treaty, which seeks to allocate taxing rights to the country where the individual is employed and has permanent accommodation available. This will be of particular importance, especially where a taxpayer is a ‘dual tax resident’ of Australia and the country where they carry out employment.
Before we can advise our clients of the impact of the proposed new residency rules in more detail, we will need to carefully review and consider the draft legislation once it is released by the Government. Murphy Tax Lawyers and Advisors will also be submitting a response to the Exposure Draft once released.
It is proposed that the new residency rules will come into effect in the income year after the legislation is enacted, for example, where the legislation is enacted before 30 June 2022, the legislation would apply from 1 July 2022. It is also important to recognise that the Board of Tax recognised that a transition period would likely be needed.
Please do not hesitate to get in touch with us if you have any questions in relation to the proposed new rules.
I hope everyone is well and take care!