The Australian tax year came to a close on June 30, and this milestone offers taxpayers a moment in time to reflect on the past 12 months as they begin to think through and collect the information needed to prepare their tax returns.
For many of my clients, the tax year involved a move to a new country, an opportunity to work remotely, or a business travel experience to an overseas location. Each of these life events can present a time for personal growth and a chance for adventure, but it can also have an Australian tax impact.
Working across borders can affect things such as your tax residency status in Australia (and also in the overseas location), whether foreign income may need to be reported in Australia, what tax deductions you can claim, and so much more. Many situations can require all of these different considerations.
4 questions to ask when it comes to Australian taxes
If your tax year involved international travel for work purposes, it could mean your tax matters are a bit more complex, and your Australian tax return may look different compared with other years.
If you are new to working in Australia, here are four questions you should consider.
1. What is your Australian tax residency status?
Your Australian tax residency status determines what income you pay tax on in Australia and at what rate. In general, Australian tax residents need to consider worldwide income in their tax returns, while Australian tax nonresidents only need to consider tax obligations relating to Australian-sourced income. Certain tax concessions are available to individuals who are considered Australian temporary residents—more on this great little concession below.
Different tax rates and levies apply depending on whether you are considered a tax resident or nonresident of Australia. Tax residents can receive an amount of income tax-free, although the top tax rate (excluding the impact of levies) is the same for both.
To determine your tax residency status in Australia, you may need to consider four different tests. If you are new to working in Australia, some relevant questions include:
- Have you become a tax resident in Australia due to your physical presence here or the plans and intentions you have regarding your stay?
- If you have a spouse and/or dependents, where do they live?
- What living arrangements do you have here and what ties have you developed?
- How does this compare to the personal and economic ties in your home country?
Consider your answers to these questions, along with your other facts and circumstances, when determining your Australian tax residency status under the relevant tests.
2. Do you qualify for Australian temporary resident tax concessions?
Being a temporary resident can really simplify your Australian tax obligations. This is because temporary residents are not subject to tax in Australia on their foreign investments. To determine whether you are a temporary resident, consider factors such as whether you hold a qualifying Australian temporary visa and whether you have a “spouse” for Australian tax purposes. If you do have a spouse, do they also hold a qualifying Australian temporary visa?
3. What income is subject to tax in Australia?
Consider the sources and types of employment income and investment income you received during the tax year. Don’t forget about bank accounts that may be earning interest or dividends you receive from shareholdings, even if these amounts are reinvested. Consider any exemptions or concessions that might apply to the income. As mentioned above, foreign investment income may not be subject to Australian tax if you are a temporary resident here.
4. Is tax relief available through an Australian double tax agreement?
If you have received income that is subject to tax in Australia and another country, consider whether a double tax agreement (DTA) may relieve double taxation, or whether you can claim a credit for foreign taxes paid.
Australia has DTAs with various countries, but there are some notable countries that we don’t have an agreement with, including Hong Kong and the United Arab Emirates. Each agreement is also unique, so be sure to read through each one carefully.
If you have paid tax in a foreign country on income that is also subject to tax in Australia, you may be able to claim a credit for the foreign tax paid. This means the tax you pay in Australia can be reduced. When calculating the credit, consider the amount of foreign tax paid, when it was paid, and what it relates to, so you can claim the right amount. The Australian Taxation Office is increasingly reviewing this area, so make sure any credit you claim is appropriate.
Final thoughts
Your first Australian tax return can be a bit more involved given all these considerations. If you are planning to prepare your own tax return, you have until October 31 to lodge it with the Australian Taxation Office. If you need some guidance and extra time to lodge, tax agents like Vialto can provide expertise and access to extended lodgment due dates. Lodgment extensions may be available through to May (and beyond) following the end of a tax year if you consult with a tax agent. This extension can also apply to tax payments that are owed to the Australian Taxation Office—something that can be particularly valuable if you are expecting a tax bill to pay.
There is a lot to know about the tax system when you are new to Australia, and it can seem daunting, but support is available if you need it. Don’t hesitate to reach out if we can help. You can sign up online for Vialto tax services via VialtoDirect™, or contact us for more information.