Several recent decisions by the Administrative Appeals Tribunal
(AAT) have highlighted the common misconception that Australian
citizens living and working overseas are not required to pay
Australian tax on their income.
This misconception is a serious risk for taxpayers living and
working in low tax jurisdictions, where the differences between the
local income tax rates and Australian personal income tax rates are
Taxpayers and advisors need to be particularly careful as
Australian Tax Office (ATO) audit activity has recently increased
in this area. In addition to the underpaid tax, taxpayers may have
to pay interest and penalties.
The AAT confirmed that income received by Mr Boer from his
employment in Oman was properly included in his Australian tax
assessment for the 2009 income year.
Mr Boer, an Australian citizen, began working with a company in
Oman in November 2008. As part of his work arrangement, he was
required to work a 35 days on and 35 days off rotation. At the end
of each rotation, Mr Boer departed from Oman and, on several
occasions, returned to Australia to visit family and friends. While
he was working in Oman, he lived in a single room apartment with an
ensuite, bed, lounge area and a mini kitchen. However, he did not
have exclusive possession of his accommodation as he shared it with
another employee who worked a complementary roster.
The AAT held that Mr Boer was a resident of Australia for tax
purposes because he had failed to establish a permanent place of
abode outside of Australia.
Similarly in this case, the AAT ruled that income received by Mr
Sully from his employment as a marine engineer in Dubai was
correctly included in his Australian tax assessment for the 2009
Mr Sully, an Australian citizen, took up a position with a
company in Dubai in April 2008. His employer provided him with
accommodation where he shared a two bedroom apartment with another
employee of the same company. Later, he was posted to work in New
Orleans where he lived in an apartment. Mr Sully maintained family
ties in Australia and owned a house in Cairns during the relevant
The AAT held that Mr Sully did not satisfy the 'ordinary
meaning of the word resides' test as he only maintained
residual connections with Australia. However, the AAT was not
convinced that he had established a permanent place of abode in
another country. Mr Sully was found to be a 'citizen of the
world' who was prepared to go wherever his work took him. As
such, because his domicile of origin was Australia, he was
considered to be a resident for tax purposes.
In this case the AAT held that Mr Sneddon was an Australian tax
resident and the income he obtained from his employment in Qatar
for the 2009 income year was properly included in his Australian
Mr Sneddon started working with a company in Qatar in April
2008. While in Qatar, he lived alone in a fully furnished apartment
provided by his employer.
After considering eight relevant factors, the AAT concluded that
Mr Sneddon was a resident of Australia under the ordinary meaning
of the word 'resides'. He maintained a 'continuity of
association' with Australia despite his physical absence from
Australia for a majority of the income year.
The AAT also noted in passing that Mr Sneddon did not satisfy
the second test as he did not establish 'a permanent place of
abode' in Qatar.
What it means for you and your clients
The ATO has a thorough audit program targeted at Australian
citizens who live and work overseas (particularly in low tax
jurisdictions). In our experience, there are two types of risk.
In the first category are Australian citizens living and
working overseas but continuing to be tax residents of Australia
(often under the extended definition of 'resident'). The
risk for these taxpayers is they fail to declare foreign source
income in their Australian tax returns, and the ATO raises
assessments for underpaid tax, interest and penalties.
The second category relates to Australians who are genuinely
non-residents, but get caught up in ATO audits because they failed
to take appropriate administrative steps (such as notifying
government agencies and correctly completing immigration cards) to
show they permanently left Australia and became non-residents.
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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.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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