The Australian Taxation Office (ATO) is currently targeting expatriates returning to Australia, sometimes after an extended time living and working overseas.
We have seen a number of instances in the last month where the ATO has suggested an expatriate was an Australian tax resident, and that the expatriate's income earned from overseas employment should be reported as taxable in their Australian income tax returns.
For expatriates living and working in countries with similar effective tax rates to Australia, the tax shortfall (if any) may not be significant, as taxpayers are generally entitled to foreign tax credits for tax paid overseas. However, for expatriates living and working in countries with low effective tax rates, the shortfall is often substantial. Our experience is that the ATO is targeting expatriates from countries with low effective tax rates, often by tracking funds transferred from overseas into Australian bank accounts.
If contacted by the ATO, it is important that you organise a detailed response to any ATO correspondence relating to your tax residency position. This includes explaining the reasons why you were a non-resident, based on the four residency tests in the domestic tax law and any 'tie-breaker' tests if you were living in a country with a double tax agreement with Australia.
It is also important to address any issues, such as continuing to own a house in Australia or transferring funds to Australia, that may lead the ATO to form a preliminary view that you were always an Australian tax resident.
If you do not respond or do not address the relevant tests, or if you do not provide sufficient evidence to support your position, there is an increased risk of the ATO issuing default assessments or amended assessments. An automatic 75% penalty of the tax shortfall applies for default assessments.
Our experience is that these matters are best resolved by providing a detailed response before the ATO commits to a position and raises tax assessments on the basis that you were always an Australian tax resident.
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.