A detail buried in the Australian federal Government annual budget last week, has been uncovered and published in the Australian Financial Review by Emma Connors, and is causing angst among the Australian expatriate community around the world.
All Black Swan Capital clients that have a connection with the US understand the broad reach and powers of the US government and the IRS via their FATCA and FBAR reporting. This proposal by the Australian government is causing similar consternation. It raises two points:
- it is important to keep up to date with changes in your home country as it could impact you; but
- these proposals, should they be ratified and implemented, may or may not actually impact you, depending on which country you live in.
What is the proposal?
The proposal is to change the definition of who must pay tax in Australia, to potentially include Australians when they are living overseas. This might also sound familiar to our South African clients, where “expat taxes” have been recently implemented. It sets out a “factor test” to re-define tax residency, more information on this below.
The proposal states that the ATO will limit the number of days an expat can spend back in Australia to 45 days per year. In excess of that and the person may be considered a tax resident, meaning they could have to pay income tax in Australia! This sounds scary, but for most Australians in Europe, there will likely be a double tax treaty in place, and because the income tax level in the EU is typically higher than in Australia, it may be a moot point. For expats living in places like the UAE, Singapore and Hong Kong, it could be much more impactful. Commentators are suggesting therefore, it might mean people will be less likely to relocate to these places. It might be something for globally mobile Australian expats to be aware of when considering the next move.
Back to the four-factor test: Under the proposal, if the 45-day rule is exceeded, the four-factor test can be applied. These are: having permanent residence or citizenship in Australia; owning a residential property in Australia; having a spouse or dependent children in Australia; and having economic interest in Australia. You would only need to satisfy two of these for the rule to apply. That means any Australian with property back home. This is another potential slug to Australia expats after the change to the capital gains tax rule changes last year.
But wait, there’s more…
They are also considering an “adhesive tax”. There is debate about whether this one will make legislation. Its intent is to make Australians and permanent residents, tax residents of Australia for 3 years after they depart.
These proposals need to make it into law and then be applied which could either be as soon as 1 July this year, or 12 months later.
What to do?
The consistent message is that the Australian government is looking for ways to increase its tax revenue and expats are seen as a target for doing that. Some people interpret that as the international Australian community not being valued, others as just a pragmatic way to increase tax revenues. Whatever the rationale, it means you may need to take these changes into consideration.
We suggest you stay informed of these proposals and their progress through legislation. Speak with your Australian tax adviser and, if you are spending time in Australia, start keeping a tally of the days you spend there.
If you want to discuss how it may impact how you manage your finances and cash flow while living in Europe, speak with us at Black Swan Capital and we will be pleased to help you.