A detail buried in the Australian federal Government annual budget has been uncovered and is causing angst among the Australian expatriate community around the world.

This proposal by the Australian government is causing similar consternation.

It raises two points:

1. it is important to keep up to date with changes in your home country as it could impact you; but
2. these proposals, should they be ratified and implemented, may or may not actually impact you, depending on which country you live in.

What is the proposal?

The proposal is to change the definition of who must pay tax in Australia, to potentially include Australians when they are living overseas. This might also sound familiar to our South African clients, where “expat taxes” have been recently implemented. It sets out a “factor test” to re-define tax residency, more information on this below.

The proposal states that the ATO will limit the number of days an expat can spend back in Australia to 45 days per year. In excess of that and the person may be considered a tax resident, meaning they could have to pay income tax in Australia! This sounds scary, but for Australians in Singapore, there will likely be a double tax treaty in place.

Back to the four-factor test: Under the proposal, if the 45-day rule is exceeded, the four-factor test can be applied. These are: having permanent residence or citizenship in Australia; owning a residential property in Australia; having a spouse or dependent children in Australia; and having economic interest in Australia. You would only need to satisfy two of these for the rule to apply. That means any Australian with property back home. This is another potential slug to Australia expats after the change to the capital gains tax rule changes last year.

How Does it work?

For Incoming Tax Residents:  This is Existing non-resident expatriates who may intend or accidentally be deemed as Australian Tax Resident.

First Step: 183 Day Test

• Did you spend 183 days or more in Australia during the financial year?
• If Yes, you are a resident, if no, then onto the next test.

Second Step: 45 Day Test

• Did you spend between 45-182 days in Australia during the financial year?
• If Yes, proceed to the factor tests, if no, you are not a resident for tax purposes.

Third Step: The Factor Tests

If you meet two of more of these factors, you are deemed as an Australian tax resident from the first day you arrive in Australia. They are as follows:

1. Right to reside permanently in Australia: Are you an Australian Citizen or a permanent resident?
2. Australian Accommodation: Do you have an arrangement at any time to stay in a property like your Air B&B or an empty property which you keep for your sole use?
3. Australian Family: Do you have a spouse and/or children under the age of 18 in Australia?
4. Australian Economic Interests: Do you have employment located in Australia, active participation in carrying on a business in Australia or interest in Australian assets such as property, substantial cash in your bank account or interest in a family trust?

Most Australian Expatriates will be able to meet at least 2 of the 4 tests and hence be deemed an Australian resident for tax purposes.

For Outgoing Australian Tax Residents: I.e. New expatriates leaving Australia for an overseas posting or those just leaving Australia.

First Step: Did you Satisfy the overseas employment rule which is ALL of the below?

• Residing in Australia for the three prior income years and,
• Being employed overseas with an employment period of over 2 years from commencement and;
• Having accommodation available in the place of employment for the entire employment period and;
• Spending less than 45 days in Australia in each income year of the employment period

If Yes, you are a non-resident from the day you leave Australia, if no, see the next step.

Second Step: Have you been an Australian tax resident for less than 3 years? (I.e. short term or long term tax resident)

If Yes (Short Term Tax Resident), then did you spend less than 45 days in Australia and satisfy less than 2 factors from the factor test as above? If yes, you are a non-resident for tax purposes from the day you left. If no, you are a tax resident and need to wait until you can satisfy the above.

But wait, there’s more…

They are also considering an “adhesive tax”. There is debate about whether this one will make legislation. Its intent is to make Australians and permanent residents, tax residents of Australia for 3 years after they depart.

These proposals need to make it into law and then be applied which could either be as soon as 1 July this year, or 12 months later.

What to do?

The consistent message is that the Australian government is looking for ways to increase its tax revenue and expats are seen as a target for doing that. Some people interpret that as the international Australian community not being valued, others as just a pragmatic way to increase tax revenues. Whatever the rationale, it means you may need to take these changes into consideration.

We suggest you stay informed of these proposals and their progress through legislation. Speak with us at Singapore Expat Advisory and, if you are spending time in Australia, start keeping a tally of the days you spend there.

If you want to discuss how it may impact how you manage your finances and cash flow while living in Singapore, speak with us at Singapore Expat Advisory and we will be pleased to help you. advice@singaporeexpatadvisory.com

General Information Only This article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any products (including funds, stocks) mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment