Working Overseas and Foreign Income Tax Considerations

[lush]

Hi All, I have been contemplating working overseas in countries that have a low to zero tax rate for ex-pats. I am an Australian Citizen and would be looking to work on and off over a 5 year period (thinking 1 year on 1 year off pattern). In that time I intend to return to Australia on and off. I have been advised by an accountant that I could be eligible to not pay Australian income tax on foreign income if I do things like close all my Australian bank accounts and rent out my home.

Having read over the Australian Tax Office (ATO) website regarding foreign income it seems to me you must declare all foreign income if you have "connections" back to Australia. 

I was wondering if there are Australian Citizens that have worked o/s as mentioned above that could kindly explain the tax implications they have faced.

Thank you.

[jaysee]

I've been working in the UK for the past 1.5+ years. For my 2017/18 Australian tax return, I declared myself a non-resident for tax purposes, providing a UK residential address. By doing this, I wasn't taxed at all on my UK earnings, and in fact, received a tax refund (due to having tax withheld during the part of the year that I worked in Australia prior to heading to the UK). I pay a relatively low tax rate in the UK, as I own a limited company here.

I believe the non-resident rule applies across-the-board, but I can't speak for other countries policies in terms of tax rates and what is required to operate as a limited company or sole trader.

[itchyfeet]

I live in the UAE, and am not a tax resident of Australia for the time being.

Tax residency is a little tricky as there are lots of variables that the ATO, and the courts of it comes to that would consider.

Your intentions are one thing that matters.

If the ATO can prove that you intended to only be living out of Australia for 12 months, then it is likely you will be found to have retained your Australian tax residency. I understand, as a guide your intent should be to live outside Australia for 2 years or more. This is not a hard rule however. Many factors are considered.

There is a questionnaire on the ATO website to help...

If you read the legal case in the link below, you will see that with what you are intending it is quite likely the ATO will take the position that you remain a tax resident of Australia as you will have no permanent home overseas.

http://www6.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/aat/2013/604.html

[itchyfeet]

If you look at the example on the 2nd page of the guidance from the ATO linked below, I think you will fin the example of the teacher in Japan similar to what your situation will be. If this is the case you will retain your Australian tax residency.

https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Residency-for-tax-purposes.pdf

[lush]

If you look at the example on the 2nd page of the guidance from the ATO linked below, I think you will fin the example of the teacher in Japan similar to what your situation will be. If this is the case you will retain your Australian tax residency.

https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Residency-for-tax-purposes.pdf

Yes it does look like my situation. Thanks very much for this information.

[lush]

I've been working in the UK for the past 1.5+ years. For my 2017/18 Australian tax return, I declared myself a non-resident for tax purposes, providing a UK residential address. By doing this, I wasn't taxed at all on my UK earnings, and in fact, received a tax refund (due to having tax withheld during the part of the year that I worked in Australia prior to heading to the UK). I pay a relatively low tax rate in the UK, as I own a limited company here.

I believe the non-resident rule applies across-the-board, but I can't speak for other countries policies in terms of tax rates and what is required to operate as a limited company or sole trader.

Thanks for this detail. Can I ask do you have relations and own a property back in Australia? Did you open o/s bank accounts in which your o/s earnings are deposited into?

[mrmoonymartian]

Just make sure you work the year over a calendar year. No point paying all that extra marginal tax by concentrating earnings in one financial year instead of spreading it over two.

[Lukim]

The ATO rules on losing your Australian tax residency have become much stricter in recent years so it is difficult to lose Australian tax residency unless you basically burn all your bridges and connections in Australia.

I ceased to be an Australian tax resident more than 30 years ago.  At that time it was relatively easy to lose Australian tax residence and I don't think the ATO particularly cared at that time.  Also, I was young then, had no "home" in Australia, visits to Australia were infrequent, no Australian wife or children etc.

As I have been outside the system for so long I am able to retain my non residency but if the current rules applied to me leaving Australia today, I doubt I would qualify as a non resident.


After more than 30 years, I intend to return to Australia within the next year and become a tax resident as, believe it or not, Australia is a relatively low tax jurisdiction for retirees (might change after 18 May 2019 and so may my plans).

[lush]

Just make sure you work the year over a calendar year. No point paying all that extra marginal tax by concentrating earnings in one financial year instead of spreading it over two.

Excellent tip. Thanks

[lush]

The ATO rules on losing your Australian tax residency have become much stricter in recent years so it is difficult to lose Australian tax residency unless you basically burn all your bridges and connections in Australia.

I ceased to be an Australian tax resident more than 30 years ago.  At that time it was relatively easy to lose Australian tax residence and I don't think the ATO particularly cared at that time.  Also, I was young then, had no "home" in Australia, visits to Australia were infrequent, no Australian wife or children etc.

As I have been outside the system for so long I am able to retain my non residency but if the current rules applied to me leaving Australia today, I doubt I would qualify as a non resident.


After more than 30 years, I intend to return to Australia within the next year and become a tax resident as, believe it or not, Australia is a relatively low tax jurisdiction for retirees (might change after 18 May 2019 and so may my plans).

Yes the rules have become much tighter around this, hence why I am looking into this in great detail to ensure it will work out. Thanks.

[Little Aussie Battler]

I worked offshore for around the same amount of time and became a non-resident for that period.

We kept our house in Australia, although rented it out so that it wasn’t available for our use. We kept Australian bank accounts, but they were used rarely. We established a permanent home abroad, and had a genuine intention to stay offshore for a long period of time.  During the period, we returned to Australia a few times on holiday, and a couple of times for work (I was working for an offshore subsidiary of an Australian company).

If you establish a permanent home (or domicile) abroad, and have an intention to stay there for a meaningful period, you may be able to ‘lose’ your Australian tax residency. It wasn’t clear to me from your post if you were planning to spend the full off-work year back in Australia or just visit, and this would probably be a key factor.

[lush]

I worked offshore for around the same amount of time and became a non-resident for that period.

We kept our house in Australia, although rented it out so that it wasn’t available for our use. We kept Australian bank accounts, but they were used rarely. We established a permanent home abroad, and had a genuine intention to stay offshore for a long period of time.  During the period, we returned to Australia a few times on holiday, and a couple of times for work (I was working for an offshore subsidiary of an Australian company).

If you establish a permanent home (or domicile) abroad, and have an intention to stay there for a meaningful period, you may be able to ‘lose’ your Australian tax residency. It wasn’t clear to me from your post if you were planning to spend the full off-work year back in Australia or just visit, and this would probably be a key factor.

I have not made a firm decision as I wanted to get a better understanding of the tax implications. From my further readings I think I would need to reside overseas for at least one year or more to fit the non Australian Tax residency case. So I might now think about working one year o/s travel for 6 months, then go back to working for another year before finally returning to Australia, so all up almost 3 years o/s.

[jaysee]

Thanks for this detail. Can I ask do you have relations and own a property back in Australia? Did you open o/s bank accounts in which your o/s earnings are deposited into?

No worries :)

I have relatives in Australia. I don't own property (unusually for an Aussie). But I do have bank accounts and investment funds in Australia, and of course, my super fund.

I opened a UK business bank account as soon as I arrived, and that's where my clients pay into. I also have a personal bank account with a debit card.