Am I a Resident for Tax purposes or not?

Question

Hi Julia,
I emailed Noel Whittaker from a link in the online Courir Mail – the response from Noel was to contact you. I have cut and paste the question from previous email to Noel.

Regards,
Mick




Thank you for writing to me – unfortunately I cannot answer your question in the newspaper but I realise the importance of it to you. Julia Hartman, my co-author in the book Saving Tax on Your Investment Property does answer specific questions by email for a very reasonable fee – it is usually just $39.95.



You can contact Julia via http://www.bantacs.com.au/property.php and then go to the “Ask a Tax Question” button.



Hope this helps.





Regards Noel
Noel Whittaker
Director
Whittaker Macnaught Pty Ltd
Level 22, 215 Adelaide Street
Brisbane Qld 4000
www.whittakermacnaught.com.au
Tel Office : + 61 7 3221 1022
Fax : + 61 7 3221 9682


——————————————————————————–

From: Michael REILLY [mailto:Michael.REILLY@Sohar-Aluminium.com]
Sent: Sunday, 17 May 2009 4:19 PM
To: Noel Whittaker
Subject: RE: Clarification on Residency for Tax Purpose and Change to Tax Return with New Budget



Hi Noel,



Thanks for your articles in the Australian papers, I always enjoy the read.





I am wondering if you can clarify for me if I am considered a resident of Australia for tax purposes?



I became a citizen of Australia in about 2002, I emigrated from Ireland after an extended working holiday in Oz. I married an Australian in July 2006 and in February 2007 began working abroad on large construction projects. I had previously worked for the same company in Australia on Australian pay roll but once I commenced international work I was hired through the International branch of the company on an International pay roll (American).



I am employed by an American company on International Payroll
I Departed Australia on International Assignment 5/02/2007 (Mosjoen Norway for 3 Months – a period of 92 days)
I Returned to Australia for 3 weeks to pack up house ready for next project overseas
I departed Australia on International Assignment 27/05/2007 with my wife to Sohar Oman – still on current assignment with estimated completion date of 31/12/09.
My wife & I both received residents card for Oman
It is highly likely that my next assignment will be in Saudi for approximately a 2 year period
Our daughter was born here in Oman in February 2008.
My wife is expecting our second child in September this year which will also be born in Oman.
I have only returned to Australia once since I departed for a 2 week period in December 2008 as my Father in law is terminally ill.
My wife & I have our first home rented out for approximately the last 7 years (it is 50/50 in each our names)
I have a unit rented at the Gold Coast (100% my name) for last 5 years
I have just completed 07/08 tax return and received return of approx $1800 but I was classed as a Resident for Tax purposes.




I just want to know if I should be Resident or non resident for Tax purposes?

And,


Will the new budget affect my tax free income received from work in Oman?



Michael

+968 92811981

Answer

Michael,

The income you earned overseas on the first assignment between Feb and May 2007 was exempt from tax in Australia (assuming it was taxed overseas) but you were still required to include it as exempt foreign income in your 2007 tax return. This means it only affected the bracket the rest of your Australian income was taxed at. Once you came back and packed up house and established your residence overseas with the intention of staying there for 2 years you are comfortably over the line as a non resident of Australia for tax purposes so Australia cannot tax any of your overseas income but it still has a right to tax the income from your rental properties in Australia. If they do make an overall profit your tax rate will be at least 29%. You should consider contributing the profit into superannuation where it will only be taxed at 15%. You will qualify for a tax deduction for the contribution because you no longer have employer support in Australia.

In the budget the government announced its intention to interfere with the exempt status of foreign earnings of tax residents of Australia. This will not affect the income you will earn for the next year or so because you will be a non resident for tax purposes but in the future if you are a resident of Australia for tax purposes but take a short assignment overseas just like you did in Feb to May 07 you may not get the exemption.

In the freebies section of our web site there is a booklet called overseas that has a lot of information that would be useful to you. Nothing in it yet about the budget announcement. When that gets through Parliament we will put an article on it in our twice monthly newsflash so if you register for that while you are in the Freebies section you will be able to keep up with what is going on.

I feel in your 2008 tax return you should have been classed as a non resident and I don’t understand how you could get an $1,800 refund as nothing you have told me suggests you would have paid any tax in Australia and you can’t get back more than what you have paid unless it is a franking credit on a dividend and then you are just getting back what the company you invested in has paid. IT 2650, a ruling available on the ATO web site under taxation rulings, old series, sets out when you become a non resident of Australia.



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