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AN ACCIDENTAL AUSTRALIAN – TAX RESIDENCY IN A COVID ERA

 

        

 

Changes to tax residency ideally involve careful planning however at the height of the global pandemic, many Australian expatriates working overseas had no option but to promptly return to Australia with little thought given to the possible tax implications of their return.  In addition, many foreign expatriates found themselves stranded in Australia.

Six months down the track, with travel restrictions largely still in place, this group of individuals may be running the risk of becoming accidental Australian tax residents.  Changes to tax residency can have some significant implications and this brief seeks to highlight some of the key areas for consideration for both individuals and employers.

When am I an Australian tax resident?

Determining tax residency will always be a question of fact and must be considered for each income year ending 30 June, based on an individual’s circumstances.  Broadly, there are three main tests of tax residency in Australia, being:

The Resides Test

 

When considering the relevant circumstances and facts, does the individual ordinarily reside in Australia.  Relevant factors include:

 

·       Behaviour while in Australia:

–        Intention or purpose of presence

–        Family and business/employment ties

–        Maintenance and location of assets

–        Social and living arrangements.

·       The period of physical presence in Australia:

–        Degree of continuity of the stay

–        Habit

–        Routine

 

The Domicile Test

 

Is the individual’s domicile in Australia?  This can be a person’s domicile of origin or domicile of choice.

An exception to this test is where the individual has a permanent place of abode overseas.

 

The 183 Day Test

 

Has the individual been physically present in Australia for 183 days or more in an income year ending 30 June?

An exception to this test is where the individual’s usual place of abode is overseas, and the individual has no intention to take up residence in Australia.

 

 

In assessing the above tests, an individual’s intention regarding remaining in Australia temporarily or otherwise is an important factor to not only consider, but also to support a position as the Australian Taxation Office (ATO) often has the benefit of hindsight when reviewing tax residency matters.

Testing residency in the era of COVID

Foreign expats in Australia

The inability to depart Australia during COVID-19 has generated uncertainty for many regarding their tax residency status in Australia.  In response, the ATO has released limited guidance that provides that a foreign resident will not become an Australian resident where they are stranded here temporarily (i.e. for weeks or months) due to COVID-19, if they usually live overseas permanently and importantly, they intend to return overseas as soon as they are able.

However, the longer the crisis continues and the longer the individual stays in Australia, the less likely that the ATO will consider their stay to be temporary, particularly given that whilst travel bans are in place, individuals are mostly free to return to their home countries.

TIP: Where foreign expats have entered Australia on a temporary visa, they may be considered to be a temporary resident for Australian tax purposes where certain conditions are satisfied. The taxation rules for temporary residents are more concessional than those set out below.

Australian expats returning

Returning Australian expats may find that proving their stay in Australia is temporary is especially difficult, given the likelihood that they will have existing social and family links to Australia and may have retained some Australian assets, including a home.

Given the subjective nature of tax residency and the importance of demonstrating an individual’s intention, individuals must be aware that there may be a tipping point in which their intention to return overseas is at odds with their actions.  For example, the following factors may be indicative of a change in a person’s intention to remain in Australia for the short to medium term:

  • Making Australian living arrangements more permanent (i.e. signing a 6 or 12-month rental lease or buying a family home), especially when coupled with giving up an overseas residence. This would likely mean that an individual would no longer have a permanent place of abode overseas.
  • Enrolling children in local schools
  • Joining Australian clubs (and cancelling foreign memberships)
  • Foreign employment ending (i.e. through resignation or termination)
  • Opening Australian bank accounts (and closing foreign ones).


Happy new year – are you a resident?

Given that we have now crossed over in to the 2021 financial year, the 183-day test becomes increasingly important, particularly given recent case law (FCT v Addy) regarding this test.  Judgments from the case are suggestive that even if an individual is living in Australia on a temporary basis and intends to return to their home country, they may be considered to be an Australian resident where they are still in Australia on 1 January 2021 (on the basis that their stay in Australia would exceed 183 days in an income year).

TIP: Those individuals that find themselves in this scenario, are encouraged to seek tax advice and consider raising the matter with the ATO, to ensure the ATO can be satisfied as to the individual’s usual place of abode being overseas and the intention to reside overseas.. It is important that individual’s robustly document their circumstances, including that they have maintained a home overseas, still have foreign employment and importantly are able demonstrate their intention to return overseas.

You’re a resident – so what?

Australian tax residency comes with the requirement to lodge an Australian tax return and pay Australian tax (and likely the Medicare Levy and surcharge, depending on whether exemptions apply) on income from worldwide sources.  Further, of particular concern for the accidental tax resident is Australia’s deemed acquisition and disposal rules for assets which are subject to the capital gains tax rules.

Under these rules, an individual who becomes an Australian tax resident (other than a temporary resident) is deemed to have acquired all their assets other than taxable Australian property (e.g. shares, foreign property, term deposits, interests in other entities, foreign currency deposits) for their market value at the time they became an Australian tax resident.

Establishing the date of residency will therefore be a critical factor and depending on the particular asset’s market value, the resetting of an asset’s cost base to market value could have varied results, which may or may not be advantageous to the individual.

Should an individual ultimately leave Australia and cease to be an Australian tax resident ( i.e. where travel restrictions are eased), they will be deemed to have disposed of all assets other than taxable Australian property for the asset’s market value at the date they cease being an Australian tax resident. The likelihood of being taxed on an asset that has not been disposed of and to which no proceeds have been received, can be a significant concern for affected individuals.

It is also noted that the CGT discount will not be available if a foreign asset is sold (or deemed to be sold) within 12 months of the individual becoming a resident.

NOTE:  Individuals can elect to disregard a deemed disposal, however where an election is made, the assets are effectively taken to be Australian assets that will be subject to Australian capital gains tax when the asset is actually sold.

TIP: Where an individual is considered a resident of both Australia and another country and Australia has a Double Tax Agreement (DTA) with the other country (i.e. such as Norway), the DTA should be considered to determine which country has taxing rights for income and gains and whether there is relief from double taxation.

TIP: A credit for tax paid overseas on foreign source income may be available in Australia to offset Australian tax payable. This may also depend on the terms of the relevant DTA Australia may have with the foreign country.

Other tax implications

Where a foreign resident becomes an Australian tax resident, the following non-exhaustive tax implications may also occur:

  • Foreign employment income will be taxed at Australian tax rates when received, regardless of whether it was in respect of work performed prior to the change in residency.
  • The impact of COVID and accidental Australian residency may have the unwelcome effect of dual residency – i.e. where two jurisdictions consider an individual to be a tax resident and tax them accordingly. Relief from double taxation may be available where a DTA between the jurisdictions exists.
  • Foreign companies owned and controlled by a now Australian resident may also be subject to a tax residency change and further tax implications.
  • Withholding tax obligations may exist in respect of interest payable on foreign loans.
  • The tax implications of foreign exchange fluctuations must be considered in respect of foreign currency.
  • Interests in foreign companies and trusts must be considered as Australia has complex rules regarding such interests. Income derived by such entities can be taxable to individuals in Australia even though no actual distribution of income is made to the individual.
  • Individuals that decide to stay in Australia permanently may wish to consider the transfer of their foreign pensions to Australia. Where such a transfer is being contemplated, it is strongly advised that tax advice be sought prior to any transfer, as there are a number of considerations and getting it wrong may have significant adverse tax implications.

 

Still a foreign resident ..?

Expatriate employment income

Ordinarily, and subject to any relevant DTA, foreign residents will only be taxed on Australian source income.  This may include employment income earned whilst being stranded in Australia.

For those foreign residents who have received paid leave while in Australia and for those non-residents that have earned salary and wages from short term (i.e. less than 3 months) remote working arrangements, employment income will not be taxable in Australia.

Furthermore, those non-residents whose working arrangements in Australia have or will continue for longer than three months, careful consideration should be given to employment terms and other matters, including their intention to leave or stay in Australia, when contemplating whether Australian tax will be imposed.

In limited circumstances, employment income will not be deemed to have an Australian source (and will not be subject to Australian tax) where a non-resident, who due to COVID, has had to work from Australia but intends to leave Australia as soon as they are able to and has no other connections here.

Employer obligations

The ATO have advised that from 1 July 2020, foreign resident employers must withhold PAYG for any:

  • Australian resident employees; and
  • foreign resident employees whose employment income is Australian sourced income.

Exceptions may apply for foreign resident employees for whom a DTA exception applies, which may broadly allow foreign residents to earn Australian sourced employment income for a short period (usually 183 days in an income year) free from Australian tax.

Superannuation Guarantee (SG) contributions, fringe benefits tax and payroll tax obligations also need to be considered as these obligations are separate from rules relating to the taxation of employment income.

TIP: Employers with displaced foreign employees will need to re-assess any tax compliance obligations that may now exist post 1 July 2020 and take steps to manage these obligations.  Importantly, employers should continue to make enquiries as to the residency status of any employees as this may have changed.

Key Takeaways

Employers

  1. Confirm the conditions and time periods of the relevant DTA (if any) for any short-term tax exemptions on Australian employment obligations.
  2. Check in with employees and understand their circumstances and intentions around staying in Australia. It is important to remember that despite any relief available, employers must withhold if they believe at the time that employment income is paid, based on the facts and circumstances of that employee is likely to remain in Australia for more than the applicable time period.
  3. While exemptions for PAYG withholding may apply- other employment obligations (i.e. SG) may still apply.

Individuals

  1. Confirm the conditions and time periods of the relevant DTA (if any)- particularly in light of the 183-day test.
  2. Remember an intention to live overseas needs to marry up with actions and behaviour.
  3. If uncertainty exists – seek tax advice and consider early engagement with the ATO.
  4. Where individuals plan to return to their overseas lives, it is strongly advised that they document and demonstrate their overseas ties and their intention to return.
  5. Where Australian residency is likely, the date of residency change and the tax implications must be carefully considered and documented.

This information is current as of 18 September 2020, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.

If you would like to discuss any matters in this newsletter in further detail, please do not hesitate to contact either Rachel Pritchard or Robyn Dyson of Cooper Partners on 08 6311 6900.

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice.
Liability limited by a scheme approved under Professional Standards Legislation.
For further information please refer to our privacy policy.

                                   

                           Robyn Dyson, Senior Manager                                                                                                   Rachel Pritchard, Principal, Leader in Human Capital

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CINDERELLA ECO GROUP – ONE OF NORWAY’S LEADING GREEN TECHNOLOGIES

Norway’s official marketplace platform for green technology – The Explorer – a free matchmaking service for connecting global challenges with green solutions – funded by the Ministry of Climate and supported by Norway’s largest private companies together with Innovation Norway profiles Cinderella Eco Incineration Toilets at the forefront of this green revolution.

*Photo above shows a Cinderella a technology meeting with (from left) Mari Lise Andersen Sunde, SCM consultant, Gunhild Sjøvik, CEO and Bård Olav Sugustad, CTO

The Explorer portal promotes green technology from Norway to the world. Here you can read short texts about some of the most exciting green solutions on offer from leading Norwegian companies. These are distributed to a large and targeted international audience through digital channels, events, embassies and more.

An important requirement for companies is that they meet one or more of the UN’s Sustainable Development Goals (SDG’s)
With our water-free toilets, Cinderella Eco Group is particularly involved in meeting the goals of SDG number 6: Clean water and sanitation for all by 2030. We mark the UN’s World Water Day every year on March 22 and UN World Toilet Day on November 19. Both these dates are important to us, highlighting the fact that over half of the world’s population, 4,2 billion people, still lack safe toilets.

In addition, SDG number 3, Good Health, is of crucial importance to us. Our solutions ensure pathogen-free waste, free of all harmful bacteria, which prevents the transmission of infections and diseases in water and soils that cause high mortality. Every year, we mark World Health Day on April 7.

Proud to be listed among leading green innovators
The Explorer contributes to promote Norwegian exports and value creation and Cinderella is proud to be in such celebrated company with some of the country’s most innovative environmentally conscious contributors. See the link to the presentation of Cinderella Eco Group in the portal here. Be sure to click on the film to see more.

Continuously developing our CSR strategies
As a sustainably managed company, located in a small island community in the heart of the Norwegian fjords on the mid-western coast, Cinderella Eco Group is part of a family owned company in its fourth generation. CEO Gunhild Sjøvik is dedicated to bringing grounded, local family values into every part of the company’s value chain. This means a continuous focus on developing responsible management and respecting those resources we are given and those we create.

When nature calls, is a payoff Cinderella uses to bring a smile to the obvious, but it also imparts a deeper meaning: respecting our planet and each other in the best way we can.

TAKE A LOOK AT CINDERELLA ECO’S SUBLIME VIDEO BELOW

Credits -Text: Trude B-J Margel – Photo: Tingh Kommunikasjon, Molde

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Meet Our Members

New Young Professional Member Anastasia Serafimovska is a researcher with first class psychology honours and a strong background in neuroscience and pharmacology.

At the University of Sydney, Anastasia is involved in developing and evaluating data-driven decision-making tools spanning psycho-oncology to addiction contexts.

She is a strong advocate for collaboratively channelling the strengths of academia and industry to culminate in lasting societal and economic benefits. By joining the Norwegian Chamber, Anastasia is keen to meet like-minded people over akvavit and explore how her interests in mental health, predictive analyses and mathematically modelling big data can support members and industry.

To find out more, you can connect with Anastasia via her LinkedIn profile.

                           

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FLOKK SPECIAL ‘NACC MEMBERS ONLY’ DISCOUNT OFFER….DON’T MISS OUT!

With working from home becoming the ‘de rigeur’ for many, Flokk is offering our members in Australia a special discount of 5%-10% off* products from their leading Norwegian brand HÅG. A range of products providing superior ergonomics and visually stimulating home and office chairs.

There is a wide variety of products to choose from and it has been suggested by Flokk Australia’s General Manager, Andrew Green, that you visit the HÅG landing page on the Flokk website to learn some more about the brand. The most popular HÅG products sold in the Australian market is the iconic HÅG Capisco, the HÅG Capisco Puls, the HÅG SoFi Mesh and the HÅG Futu Mesh chairs.

To get ‘a get a little piece of Norway’ into your home office – and the best offer and discount too – shoot an email through to the team at Flokk Australia for them to help you select your dream chair from this amazing brand that designs and manufactures it’s product out of Norway.

*Offer ends 30 SEPTEMBER 2020

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Member Monthly Spotlight

BUSINESS MEMBER
Vivien Brimelow – Owner, Chiropaedic – Chiropractic, Rehabilitation + Neuro-Muscular Skeletal Assessment

Chiropaedic is a holistically focused chiropractic and healthcare practice based at St Leonards in Sydney – very accessible for those working and residing in North Sydney and Sydney’s North Shore. Providing members of their community with high quality, affordable health care in a comfortable and caring environment is Chiropaedic’s principal mission and purpose. Their goal is to not only alleviate pain, but more importantly, inspire and educate their patients to become active participants in their own well-being. Their approach is a holistic one, whereby they treat the entire person, not just their symptoms. Through this comprehensive and structured approach, they are better able to help their patients achieve optimal levels of health and wellness, so they may express their true potential and unique greatness.

 

 

YOUNG PROFESSIONAL MEMBER
Warm welcome to new Young Professional Member Anastasia Serafimovska, a young researcher with first class psychology honours and a strong background in neuroscience and pharmacology.

At the University of Sydney, Anastasia is involved in developing and evaluating data-driven decision-making tools spanning psycho-oncology to addiction contexts.

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Transition Faster Report Series: Accelerating the Energy Transition Together

 

Global warming will have catastrophic consequences for humanity – this is why we signed the Paris Agreement. Five years on, we have not made the progress required to deliver this.

To inspire and inform, DNV GL has launched Transition Faster Together, a series of reports which outlines the predictions, strategies and solutions to help us accelerate the energy transition.

These reports are supported by an industry information source, the ‘Transition Faster Hub’, which showcases best-in class projects, technology, innovation, solutions and thought leadership from DNV GL’s experts and the wider industry.

Explore their hub today and download the report here.

Technology, policy and societal change have the power to create a clean energy future, but we certainly need to accelerate considerably to stay ahead.

Transitions Faster Together

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Kongsberg Defence Australia’s Leading Technology – Working With Australia’s Defence Force For Over 20 Years

Kongsberg Defence Australia’s Leading Technology and latest collaboration illustrates its close working relationship for over 20 years with Australia’s Defence Force.

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Yara International ASA Shares Second Quarter Results 2020

 

For those you who are interested in tuning in to the Yara International ASA Second Quarter 2020 Report and Presentation, put a place holder in your agendas for

 

Friday 17 July 2020 at 08:00 (CEST)

This will be followed by

an On-line Presentation in English 

+

Q&A Session will held on the same day at 12:00 (CEST)

 hosted by

 Yara President and CEO Svein Tore Holsether

CFO Lars Røsæg

and

EVP Farming Solutions Terje Knutsen

 

Access link to the report, presentation and webcast here.

 

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France’s Olympique Lyonnais: Bringing Together Australian and Norwegian Top Female Soccer Players

In case you missed it…did you know that Norwegian women’s football star Ada Hegerberg and Australian female soccer player Ellie Carpenter now both play for France’s Olympique Lyonnais, the six-time European Champions League winner and 14 times champions of France’s Division 1 Feminine.

No doubt, with the addition of the Aussie player, this dynamic combo will show how our two nationals can team together with some of the biggest names in women’s football to power, unite and drive the team with their talent and sportsmanship.

 

    

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Spotlight on Norway and Australia – Similarities and Comparisons As We Move Forward Into a Post-Covid-19 Landscape

Following up from our previous co-hosted virtual round-table event, the Norwegian Embassy in Australia and the Norwegian Australian Chamber of Commerce provided insights into the Norway-Australia trade relationship and how the Embassy too in Canberra is now working remotely and remaining connected everyday with their Australian political and trade counterparts, their colleagues in Perth and Melbourne as well as Australian-based Norwegian companies who have shared their Covid-19 feedback and experiences. A number of these companies reported their focus has been on bringing their people together while working remotely. DOF Subsea’s Michael Rosich and Empeiria ConsultancyMiles Ponsonby both noticed and observed that while communications have been less frequent, they have found that while working from home they have had more peace and quiet to focus on the priorities and that they are now seeing business and operations start to pick up here while others are struggling globally. As Michael Rosich shared, while it appears there have been challenges, they are actually doing better than some organisations and not as bad as others which is encouraging.

NORWEP has also been active, using this period to profile and present Norwegian companies’ energy technology capabilities via virtual sessions and by attending webinars and other online events rather than traditional office visits. From what they have been experiencing and hearing from these companies so far is that business has actually not only been positive but even more positive than expected. Norway has also been faring and managing Covid-19 better than some other countries, including one of their neighbour’s, Sweden.  Overall, their interactions have revealed that Australia, New Zealand and Scandinavia in general are doing well, including recovery from the pandemic. They have also cited a shift in consumer focus, with some companies such as Ekornes, achieving good success and positive results while shipping, transport and oil industries are struggling to deal with lower prices. 

Another upside, is the rise and prominence of new sectors such as renewable energy and renewable energy transition. Their conversations and discussions with DFAT have shown how like-minded nations, such as Norway and New Zealand, are ‘safe suppliers’ although there appears to now be a trend and tendency of making countries less reliant and dependent on exports and imports. But seeking reliable and like-minded partners is also coming to the forefront so that in terms of the supply chain, countries are now looking for and seeking reliable and dependable export and import partners, from retail to strategic, and that the Norwegian Embassy in Australia is here to support Norwegian companies, by building bilateral relations that develop business relationships with their Australian counterparts. The Norwegian Embassy also expressed the pleasure for them in building these bilateral relations to support the economic growth, development and exchange between our two countries.

They are also very upbeat and foresee many opportunities and sectors that are coming to the forefront and are looking at how to expand interaction and engagement between both countries and their counterparts. The post Covid-19 focus is getting Norway back on its feet especially as Norway, like Australia, has seen a 5% contraction of its economy. The upside for both our nations is low public debt and strong economies. And on a very positive note, Norway and its markets are showing upbeat and positive signs. While the outlook looks bright, Norway emphasises the importance of and need for innovation and that Norway’s doors are open…and they will continue to open doors for Australian business.

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