We continue our series on real life stories of Australian Expats. In this story, Bruce Wayne (name changed to protect the innocent), discusses his experiences with the Australian Tax Office after returning to Australia from an overseas assignment. The ATO’s challenge to his tax residency was set to cost him $200k.
This story is a great reminder for us all…
Tell us about your Expat Assignment Overseas?
I was keen to try something new, and had been looking for an overseas posting for some time. I was offered an opportunity to work as a Senior Engineer on the design and construction of a factory in Saudi Arabia. It was going to be an exciting project to be involved in, and would involve work across Australia, Saudi Arabia and South Korea where much of the equipment was being fabricated.
In the end I worked overseas for just over 2 years (across a number of overseas locations including Saudi Arabia and South Korea). I was paid in US dollars and this was automatically deposited into my Australian bank account by my employer each month.
Did you consider the tax residency and other implications of moving overseas prior to leaving Australia?
I wanted to be proactive about my financial affairs and so I had a meeting with my accountant before leaving Australia to discuss the taxation implications, and in particular my tax residency.
Although the project I would be working on was granted an exemption from Australian Income Tax (under section 23AF of the Income Tax Assessment Act 1936) which meant my income would have been exempt from tax in Australia, my accountant advised me to instead become a non-resident for Australian tax purposes.
In order to meet the requirements to be considered a non-resident for Australian tax purposes, I undertook a number of steps :
- I resigned from my full time position as an engineer in Australia
- I appointed a property manager to rent out my house
- I sold my car
- I suspended my private health insurance indefinitely
- I was also single at the time, and had no ties to Australia except for my parents living there
When was the first you knew you may have some problems with the ATO?
Approximately 6 months after returning from working overseas, I received a letter from the ATO advising me that the ATO had information from the Australian Transaction Reports and Analysis Centre (AUSTRAC) that indicated I had transferred money to or from another country.
The letter reminded me that “under Australian income tax law, residents for tax purposes generally need to declare and pay Australian tax on all income from both inside and outside of Australia.”
The letter continued to state that “You should take this opportunity to review your situation and determine if you need to disclose any information to the ATO. If you do this, and have nothing further to disclose, you can disregard this letter.”
At this point I discussed the letter with my accountant, but as we were confident I was a non-resident for tax purposes during my time overseas, we disregarded the letter.
And so what happened after you disregarded the letter?
About six months after receiving the first letter, I received another letter from the Australian Tax Office requesting information clarifying my tax residency status for the tax year in question.
The letter included a 40 question questionnaire was seeking “to provide the Taxation Commissioner with sufficient information to decide whether he should or may reasonably be satisfied…that [my] ‘permanent place of abode’ was outside of Australia.”
I had 14 days to complete the questionnaire, as well as provide all supporting documentation. In the end, the supporting documentation included employment contracts, copies of lease agreements, and rent receipts.
How did everything end with the ATO?
After reviewing my questionnaire the ATO rejected my tax residency declaration. The ATO issued a tax statement (based on me being a tax resident of Australia for the period in question) and advising me that I had an outstanding liability to the ATO of approximately $200k (incorporating outstanding tax, interest and penalties). And this was continuing to attract interest on a daily basis.
After further discussion with my accountant, we prepared an Objection to an Amended Assessment. Following this submission, the ATO rejected my tax residency declaration again, but agreed to treat my overseas income as being exempt for income tax purposes (per the ruling the project had received from the Australian Tax Office).
Although the ATO determined against me in relation to my tax residency, everything ended up okay in the end. However, it was one hell of a stressful year – putting enormous strain on my marriage, as well as needing to contemplate the sale of my property to pay the tax bill.
What is your advice to other Australians who are preparing to move abroad?
- Pay for the best advice you can afford and from someone who has lots of experience dealing with expat tax residency issues. Do not just rely on your local accountant, who has been doing your tax return for the last ten years, unless he is experienced in this area.
- If your situation is complicated, or you have any doubt about the advice you receive, get a second opinion on your tax residency status
- Consider taking out tax audit insurance. I had taken out tax audit insurance through my accountant for a number of years, and all the time that my accountant spent defending my tax residency with the Australian Tax Office was covered by my audit insurance.
Do you understand the tax implications of moving abroad? Download our Special Report – Tax Implications For Australians Working Abroad
Want to share your unique Australian Expat story? Send me an email.
Here are some related articles to this story that might be of interest to you :
- Am I an Australian Resident For Tax Purposes?
- Are Your Money Transfers Being Reported to the Australian Government?
- Do I Need to Complete an Australian Tax Return?
Get expert Australian and UK tax advice from our expat tax partners at GM Tax. Complete the form below and they will contact you to arrange a discussion.
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