Ask Ban Tacs Question
Dear Julia
My question is about my wife’s tax residence in FY2023. In April 2022 I started a long term international posting in Europe and left Australia for at least 5 years. My wife and son joined me in June 2022 and my son started school in Europe in September that year. My wife returned to Australia twice (for work reasons in September 2022 and then in December to supervise a bathroom renovation before renting our residence out in January 2023). She permanently moved to Europe in January 2023 but continued to work for her Australian company remotely until end of March 2023.
I believe she became a foreign resident for tax purposes when she moved to Europe permanently in January 2023. The question arises about the taxation of her income, assuming that for 3/4 of the year she was an Australian resident for tax purposes. My tax agent says she cannot apportion this between resident and non-resident rates, but I am not so sure and would like to hear your advice on the tax treatment of her income in that financial year.
Thank you.
Answer
For your Tax Agent
See below put in Y and the dates from 1st July to when became a non resident – Now it is my opinion that your wife became a non resident in June 2022 so these instructions are really in regard to your 2022 tax returns. Your wife will be a resident for all of 2022 financial year where as you will have 2 months you are a non resident in the 2022 financial year. It is not a matter of changing between resident and non resident tax rates. It is about apportioning the tax free threshold that you are entitled to in the year you leave and ignoring any of your non resident income after the date you leave ie your overseas wages once you have left the country because at that point Australia loses the right to tax your income other than from Taxable Australian Property (rental income). In 2023 you are both non residents, this means Australia does not have a right to tax your wife’s Australian wages, Europe does.
Again the date that you became a non resident and the number of months or part months that you were a resident
Then put any income earned while a non resident that Australia does not have a right to tax here. It should not affect your tax but is relevant for things like the HECS debt repayment threshold.
So becoming a non resident means Australia has no right to tax your interest, dividends, wages for the period you are a non resident but it still has a right to tax income from Taxable Australian Property ie the rent on your house. You only put in your Australian tax return your income that Australia has a right to tax which is the net rent (and just put in a notation of your overseas income) and your tax agent’s software will apportion the tax free threshold in the year you move but for 2023 there will be no tax free threshold and fully taxed at Australian non resident rates.
Now to the question of when you wife became a non resident for tax purposes.
Here is the ATO ruling on the issue of residency https://www.ato.gov.au/law/view/document?docid=TXR/TR20231/NAT/ATO/00001
Assuming your wife is just being paid wages from an Australian business not actually operating a business in Australia.
It seems to me that your wife left Australia with the intention of living overseas in June 2022. I can’t see anything that could be argued differently. Besides it is unusual for a family to be considered to be residents of different countries though slightly different leave dates is not unusual. The 2 key points in time are when it was decided to leave Australia and when she actually left the country. Your departure made it pretty clear she decided to move overseas to live before April 2022 but as she didn’t actually leave until June 2022 that would be the date she became a non resident. It is worth reading examples 6, 9 and 10 from the ATO ruling.
Based on the information you have told me and assuming you both own the property then I think the only thing that qualifies to go in your 2023 tax return is the rental income and you will both be taxed at non resident tax rates.
Here is a tip for the future. If the property is positively geared and you already have a superannuation fund in Australia you can make concessional superannuation contributions to offset the profit and avoid the non resident tax rates. The super contributions will be taxed at 15% in the hands of the super fund though you are capped at $30,000 each but surely that is enough. Whatever you do don’t sell your Australian home while you are non residents (coming back on holidays does not make you a resident again) if you sell while overseas you will lose all your main residence exemption concessions right back to the day you purchased it.
Because you have a rental property in Australia you will still need to lodge a tax return in Australia. Can I recommend Lyn Gower lyn@bantacs.com.au who has plenty of experience in this area and can deal with you totally over zoom, phone and email.
