This has become the hottest question going around Australian Expatriate communities around the world.
In the May 2009 Federal Budget, Australian Treasurer Wayne Swan announced changes to the Foreign Exempt Income rules that affect Australian residents working abroad.
Importantly these rules do not apply to any Australian genuinely living overseas on a fulltime permanent basis as you would be classed as Non Resident for tax purposes and your foreign income is not subject to tax in Australia at all.
The current rules only apply to people living permanently in Australia, that is having their home and life base there, and commuting overseas for various periods to work on assignment or shift basis, such as a fly in fly out worker. In this situation you would still be classed as a Resident for tax purposes in Australia.
Presently, income earned by an Australian tax resident overseas is subject to tax in Australia, however a special exemption applies where that income is taxed in the country it was earned and also the period of time abroad was more than 90 days at a time with only incidental trips back to Australia.
The changes due to come in to effect on the 1st July 2009, will remove this tax exemption and make the foreign income fully taxable in Australia and allow a full tax credit for any tax paid on the income in the foreign country.
This will have a major impact for travelling workers in lower tax countries than Australia, such as Asia and the Middle East, and will require a rethink of their affairs.
Many will be financially forced out of Australia and take up permanent residence in the country of earnings and sever ties to Australia at least in the medium term.
If they decide to move abroad on a genuine basis and become true Expat status, then the offshore income will no be subject to tax in Australia, which is likely to be a more attractive option than becoming taxable on their current earnings.
For existing expatriates, there is no need to panic as the changes will have no impact on your situation, however you should be clear that you are indeed a genuine expat.
For this to be true you should:
- Have a genuine and permanent home in the country you live and work,
- Have an indefinite time period of intended stay abroad, usually around two or more years,
- Have your home life, career and majority of time spent in the country of earning,
- Have an appropriate visa for allowing you to live in the foreign country.
p>If you have these ticked off then you can sleep easy that your foreign earning will not be subject to Australian taxation while being earned or on your eventual return to Australia. If in doubt make sure to contact us and we will be able to quickly establish your position.
