Ask Ban Tacs Question
Thank you for providing me with excellent advice in the past. I have a question about tax residence. I moved to Europe in April 2022 to take up long term employment for an international company. At the time I was on long service leave at my Australian company and did not do any work for it in FY2023. I officially resigned from the Australian company in August 2023 while living overseas, but there was a small amount of income coming in from Australia in FY2023 due to the long service leave being in effect.
My wife joined me overseas permanently in October 2023 and we have lived in Europe ever since. She continued to work for her Australian company remotely until March 2023.
The question is about our tax residence and how my long service leave may affect the tax calculations. My understanding is that if you are away from Australia on a permanent basis, you’re considered a foreign resident for tax purposes. I do not want my foreign income to be taxed in Australia, since I have for all intents and purposes left the country in the previous financial year. All our properties, including principal residence have been rented out, so my thinking is there should be no difference in the tax treatment of this income and my long service leave. As for my wife, it may be advantageous to her to claim Australian tax residence in FY2023, but is that going to affect my tax residence?
Answer
The years in this sentence don’t make sense, I am going to assume you mean March 2024
“My wife joined me overseas permanently in October 2023 and we have lived in Europe ever since. She continued to work for her Australian company remotely until March 2023.”
It is difficult for spouses to argue they are residents of different countries once they are together in the one country. The fact your wife is based overseas but working for an Australian company does not effect the main tests.
Of course the fact that you had left the country with long term plans to live overseas before she did will certainly make her a resident of Australia while you are an overseas resident but not if she is just in Australia on a holiday after living overseas with you. You become a non resident of Australia when you leave the country with the intention of living in another country (not just travelling) for a couple of years. If you are not sure whether you are going to stay overseas when you leave, you don’t become a non resident until you decide that you are going to continue to live overseas. In your case taking on the long term job shows you intended to become a non resident from the time you left.
Have a read of examples 6 through to 10 of this ruling. https://www.ato.gov.au/law/view/document?docid=TXR/TR20231/NAT/ATO/00001 the terms used are explained further up.
From what you have told me I think example 10 suites your situation best but the other examples help you understand what matters. You became a non resident for tax purposes in April 2022 and your wife in October 2023 or earlier if she was only back in Australia on holidays.
There is one possibility that could change this. A member of a Public service Superannuation fund remains a resident of Australia for tax purposes even when they are working overseas.
Once you are a non resident of Australia for tax purposes Australia only has a right to tax income connected with Australia. That would be your Australian net rental income. Note going forward with the rental income you could contribute this to an Australian superannuation fund and claim a tax deduction for it, limited of course to the $27,500 cap plus any unused cap if you have less than $500,000 in super. This would move the income from the non resident rate of 30% (from 1-7-2024) down to 15% in the hands of the superannuation fund. The change of residency can happen part way through the year. You tax free threshold is apportioned.
That long service leave you have received would be taxable in Australia as wages income earned by a foreign resident https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency/foreign-and-temporary-residents#ato-Foreignresidents Unfortunately if it was paid to you after April 2022 it will be at non resident tax rates. Your overseas wages won’t be taxed in Australia.
Has your wife been receiving wages up to March 2024? If so she it going to cop non resident tax rates on that after October 2023. If on the other hand she was just invoicing her payer the income is probably not taxable in Australia, you would need to consult the double tax agreement with the country you reside in.
