We live in a more integrated world than ever before. As a result, the workforce is more globalised and increasingly more mobile. It is increasingly common for people to work overseas on a short stint or on a more permanent role. The residency of that individual for tax purposes then becomes an issue.
In essence, an individual who is domiciled in Australia is generally considered to be a tax resident of Australia, unless the Commissioner is satisfied that their permanent place of abode is outside Australia. Generally, an individual’s place of abode is considered to be a dwelling where one lives with their family and sleeps at night. A permanent place of abode need not necessarily indicate an intention of the individual to remain in the foreign country indefinitely without any foreseeable return date to Australia.
In contrast, the individual should be able to support that they have an enduring relationship with the foreign country which is more than temporary or transitory in nature. The courts have ruled that an intention to return to Australia in the foreseeable future does not prevent the establishment of a permanent place of abode in a foreign country.
As a general rule of thumb, an assignment greater than two years is likely to indicate that an individual is breaking residence, unless they are unable to establish a permanent place of abode outside of Australia. The following factors are relevant when determining if an individual has established a permanent place of abode outside of Australia:
- the intended and actual length of the taxpayer’s stay in the overseas country;
- whether the taxpayer intended to stay in the overseas country only temporarily and then to move on to another country or to return to Australia at some definite point in time;
- whether the taxpayer has established a home (in the sense of dwelling place; a house or other shelter that is the fixed residency of a person, a family, or a household), outside Australia;
- whether any residence or place of abode exists in Australia or has been abandoned because of the overseas absence;
- the duration and continuity of the taxpayer’s presence in the overseas country; and
- the durability of association that the person has with a particular place in Australia, (i.e. maintaining bank accounts in Australia, informing government departments that he or she is leaving permanently i.e. Centrelink or AEC, place of education of the taxpayer’s children, family ties and so on).
The weight given to each factor will vary depending on the individual’s circumstances. There is no single factor that is considered exclusively and not all factors need to be present to establish a conclusive argument for the individual having a permanent place of abode outside of Australia.
There are certain actions that an individual can take to support the existence of a permanent place of abode outside of Australia by severing certain habitual ties with Australia. Getting tax advice and proper planning in advance can therefore give a little bit more certainty and maximise the tax outcome.