The ATO is currently targeting expatriates returning to
Australia, sometimes after an extended time living and working
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
The recent case of Pillay v Commissioner of Taxation
 AATA 447 is an example of the arguments that the ATO are
pursuing to assert that an individual 'resides' in
Australia for tax purposes. Dr Pillay was held to be a resident of
Australia in the 2010, 2011 and 2012 income years, despite living
and working in East Timor since 2006. The AAT accepted the
ATO's submission that Dr Pillay had had a 'continuity of
association' with Australia and was therefore a resident for
tax purposes. Dr Pillay maintained a house and had bank accounts in
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
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.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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TR2014/6 addresses the Taxation Commissioner's controversial power to reconstruct a taxpayer's 'actual' transactions.
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