24 Jul 2011 | Investing
Whether someone is classed as an Australian resident for tax purposes has a major effect on what they pay tax on and at what rate. By the flood of questions sent in from readers both here and overseas the matter of residency causes many problems. Because of the complexities in this area, and because every case is judged on its own facts, professional advice should be sort to ensure you get the right answers.
Q. I have a three year contract in Doha. I rent an apartment there but still have a house in Kiama which my children live in. I receive no income from this. I pay no income tax on my wages in Doha and transfer money into my bank account to pay the mortgage in Australia. It is also an offset account for the loan that we pay bills out of. My accountant advised that I should be a classified as a non-resident as I have a three year contract and rent an apartment in Doha. My wife has taken leave without pay and currently does not work in Doha. Do you think I am a non-resident for tax purposes?
A. The question of Australian tax residency can in some cases be very easy, while in other cases it can be extremely hard. At the heart of deciding tax residency is the intention of the taxpayer. Where this cannot be established clearly the ATO applies various tests to work out what a taxpayer’s real intention is.
One of the tests used is to establish where the taxpayer normally resides. The ATO on their web site gives the Shorter Oxford Dictionary definition of resides as, “to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live in particular place”.
The ATO in deciding where someone normally resides takes account of where a person’s family, business and employment ties are, and where they organise their financial affairs. Also taken into account is where their permanent place of abode is. In other words where their residence is and where their family sleep at night.
In your case as you have retained your home in Australia, you have not purchased a new home in Doha and are only renting, your wife has not resigned her employment but only taken leave without pay, you have a finite three year contract that is not a permanent placement, and you maintain a bank account in Australia that you pay bills out of, you would more than likely be classed as an Australian resident for tax purposes by the ATO.
Q. I have become resident in Australia and have a house rented in Ireland which I am filing a tax return in Ireland and have losses carried forward. In Australia am I liable to pay tax on this property here and if so can I claim Interest, depreciation etc. The house was purchased in 1990 and was our principle residence for most 16 years.
A. As you are a resident for Australian tax purposes you pay tax on your worldwide income. Because you are making losses on the rental property in Ireland, due to being able to claim costs such as interest, rates and depreciation, there will be no impact on the tax you pay in Australia.
When you sell your former home capital gains tax will be payable on a portion of the gain you make. The assessable capital gain is calculated by dividing the gain by the total days of ownership then multiplying by the number of days it was not your main residence.
Investment tax questions can be emailed to firstname.lastname@example.org