Moving overseas? You may have to pay more tax


A dual citizen has been declared a non-resident of Australia by the Commissioner of Taxation via a Private Binding Ruling request. As a result of this, the employer of the dual citizen is required to withhold tax on salary at the non-resident tax rate.


In order to be classified as a tax resident of Australia, an individual is required to meet the definition as defined in ITAA 1936 s 6(1). The definition offers four tests to use to ascertain whether an individual is a tax resident of Australia, and includes the:

• resides test

• domicile and permanent place of abode test

• 183-day test, and

• Commonwealth superannuation fund test.


The "resides test" is the primary test for residency. If this test is failed based on relevant factors, then the other three tests are applied.


Relevant facts and circumstances


The individual:

• was a dual citizen of Australia

• moved overseas with their spouse and children

• was employed by an Australian company to complete work serving Australian customers

• maintained an Australian bank account to receive their salary

• had no occupation in the foreign country

• was only renting in Australia before moving overseas

• shared a house with in-laws in the foreign country, and

• advised Medicare that the family had departed Australia




In the ordinary concepts (resides) test for residency, not one of the eight factors has greater weight to the others when making a determination. The weight usually becomes apparent when looking at everything as a whole.

The eight factors taken into account by the courts and tribunals are:

• physical presence in Australia

• nationality

• history of residence and movements

• habits and "mode of life"

• frequency, regularity and duration of visits to Australia

• purpose of visits to or absences from Australia

• family and business ties with Australia compared to the foreign country concerned, and

• maintenance of a place of abode.


Based on the relevant facts for the individual, residency pointed towards being a citizen of Australia and having all business ties related to Australia via employment. The individual had no other major income from employment or business purposes. The individual was being paid into an Australian bank account presumably in Australian dollars.


Non-residency pointed towards the individual's immediate family (ie spouse and children) living in the foreign country with extended family. While this could be considered usual and non-determinative because circumstances may have been fortuitous, the individual informed Medicare that they were leaving Australia indefinitely.


As noted, all signs generally pointed towards residency, due to all the work being Australian-sourced. Perhaps the individual was working remotely and was back in the foreign country with family for an unknown period for personal reasons.


The individual telling Medicare that the family was leaving indefinitely was the factor which tipped the scales to the individual being a non-resident. The individual also failed the other three tests.


Client application


As the individual is an employee non-resident, their salary is now taxed at the non-resident marginal rates. Also, this higher rate of tax is withheld from the individual's salary as part of the payroll process.

This could result in a few further issues, including:

• whether the individual is able to claim a rebate of Australian tax paid in the foreign country

• the individual no longer be eligible to receive superannuation guarantee, and

• the employer being aware that the PAYG withholding has to occur at the higher rate.

All these factors could considerably change the overall outcome for the individual salary package, including where superannuation guarantee amounts may be taxed at 37% or even higher.


Client opportunities


If applicable, the individual may look to a different structure and provide the Australian company with services under a contractor arrangement. However, this can be tricky in instances where the individual was previously employed as an employee. Payments for contracted services to a foreign contractor typically do not have withholding amounts applied.


The individual may want to review their options in this situation, particularly in the foreign country.


Information sourced using CCH iKnow