Just my thoughts (and practice) on oz tax when working overseas. Even though I work and live overseas, I declare myself to be an aussie tax resident on my Australian tax returns. This is NOT a tax ruling or anything, not is it advice: just my own tax situation and my legal backup. Italics are from the ATO site, non-italics are my comments:
1) RESIDENCY
http://www.ato.gov.au/print.asp?doc=/content/36263.htm
Residency – the domicile test
The domicile test is the first statutory test. You are a resident of Australia if your domicile is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.
Note:
In practice, if you are a resident who has always lived in Australia you will retain a domicile here when you are absent overseas, unless you choose to permanently migrate to another country.
It's more a 'you are a tax resident unless you can prove otherwise' kind of regime. Which makes sense, since in general the ATO gets more tax from you if you're resident (CGT, interest, etc). i.e. the ATO doesn't mind if you might qualify as a non-resident but declare yourself an Aussie tax resident anyway.
2) FOREIGN EMPLOYMENT INCOME
http://www.ato.gov.au/individuals/content.asp?doc=/content/28908.htm
Is my foreign employment income exempt from tax?
Your foreign employment income is exempt from tax if:
you are a resident of Australia
you are engaged in continuous foreign service as an employee for 91 days or more, and
your foreign earnings are not excluded from exemption by the following non-exemption conditions.
The main condition being the country you work in must have a double tax treaty with oz. I'm not sure about tax havens but the main expat countries such as most of Western Europe, Japan, the UK, Singapore, the US, China (which I assume includes Hong Kong) have double-tax treaties with Oz (there's a list on the ATO website). So employment income from working in these places are NOT double taxed in Oz.
So, taking these together, if you have negatively geared property in Oz and work overseas (and you intend to go back to Oz) there's no need to declare tax non-residency.
In practice:
Foreign investment income will have to be declared. Not an issue for me since all my investments are in Oz.
You have to declare your foreign earnings on your aussie tax return. They take this into account when calculating your marginal rate. However, in a net Australian tax LOSS situation, your effective rate is zero until your aussie income becomes positive.
So, if your properties are -ve geared effectively means your tax rate is zero, no matter what your foreign employment income is. Imputation credits from franked dividends are REFUNDED (I was really happy when they changed that! Before you used to just lose the credits if you didn't use them). So Telstra 3, for example, gives me a tax free 14% + the imputation credit is refunded. After tax return in the high teens.
Losses are accumulated (not indexed, so you lose to inflation) and carried forward until you have Australian income to offset it. In most cases this will happen when you come back to oz to work, unless you build up enough interest and dividends to offset your tax losses (some of which, of course, will be non-cash depreciation). However, you are probably making more money overseas than you would in Oz, so that evens out.
Just something to consider when you think about going overseas. It would be beneficial, for example, to have more shares with franked dividends. I stress that this is NOT advice, just how my accountant said I can do it. Talk to your own accountants and read the tax law to make your own conclusions.
Alex
1) RESIDENCY
http://www.ato.gov.au/print.asp?doc=/content/36263.htm
Residency – the domicile test
The domicile test is the first statutory test. You are a resident of Australia if your domicile is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.
Note:
In practice, if you are a resident who has always lived in Australia you will retain a domicile here when you are absent overseas, unless you choose to permanently migrate to another country.
It's more a 'you are a tax resident unless you can prove otherwise' kind of regime. Which makes sense, since in general the ATO gets more tax from you if you're resident (CGT, interest, etc). i.e. the ATO doesn't mind if you might qualify as a non-resident but declare yourself an Aussie tax resident anyway.
2) FOREIGN EMPLOYMENT INCOME
http://www.ato.gov.au/individuals/content.asp?doc=/content/28908.htm
Is my foreign employment income exempt from tax?
Your foreign employment income is exempt from tax if:
you are a resident of Australia
you are engaged in continuous foreign service as an employee for 91 days or more, and
your foreign earnings are not excluded from exemption by the following non-exemption conditions.
The main condition being the country you work in must have a double tax treaty with oz. I'm not sure about tax havens but the main expat countries such as most of Western Europe, Japan, the UK, Singapore, the US, China (which I assume includes Hong Kong) have double-tax treaties with Oz (there's a list on the ATO website). So employment income from working in these places are NOT double taxed in Oz.
So, taking these together, if you have negatively geared property in Oz and work overseas (and you intend to go back to Oz) there's no need to declare tax non-residency.
In practice:
Foreign investment income will have to be declared. Not an issue for me since all my investments are in Oz.
You have to declare your foreign earnings on your aussie tax return. They take this into account when calculating your marginal rate. However, in a net Australian tax LOSS situation, your effective rate is zero until your aussie income becomes positive.
So, if your properties are -ve geared effectively means your tax rate is zero, no matter what your foreign employment income is. Imputation credits from franked dividends are REFUNDED (I was really happy when they changed that! Before you used to just lose the credits if you didn't use them). So Telstra 3, for example, gives me a tax free 14% + the imputation credit is refunded. After tax return in the high teens.
Losses are accumulated (not indexed, so you lose to inflation) and carried forward until you have Australian income to offset it. In most cases this will happen when you come back to oz to work, unless you build up enough interest and dividends to offset your tax losses (some of which, of course, will be non-cash depreciation). However, you are probably making more money overseas than you would in Oz, so that evens out.
Just something to consider when you think about going overseas. It would be beneficial, for example, to have more shares with franked dividends. I stress that this is NOT advice, just how my accountant said I can do it. Talk to your own accountants and read the tax law to make your own conclusions.
Alex