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Globalisation and the tax system- how taxation affects individuals moving to and out of Australia

James Tng

Australia still boasts the attraction of lifestyle, relative safety and low sovereign risk, high quality education and a stable economy. For this reason more and more people are looking to migrate to Australia and call it home. Many are also looking to invest in Australia as a safe haven to accumulate wealth in a continuously unstable and unpredictable world.
We operate in a 21st century world working with laws that never contemplated business being done the way it is now. The Australian Government has recognised these challenges and proposes from 1 July 2017 to expand the scope of the Australian tax system to capture the digital economy in Australia.
With this as a backdrop, tax residency more than ever has become a highlight of audit activity for the ATO. With the introduction of AUSTRAC in 1989 the Australian government began collecting information on money flowing into Australia and more recently has been using this as a basis for broad investigation into asset acquisitions and non-declaration of income. The audit can happen anywhere up to 4 years after funds are transferred (around the same time people’s memories have become foggy).
Trends we have noticed are: -

  • Increased tax audit activity

  • Investigation into individuals who have their families in Australia but seem to travel abroad for work/business, without declaring income in Australia

  • A focus on residency status of an individual when it comes to property purchases (was this permitted), and income declared

  • Overseas assets coming under the microscope

  • Increased “heat” on tax havens where the perceived wealthy may be sheltering their money

The 4 tests for tax residency are: -

  1. Ordinarily resident

  2. Domicile

  3. Statutory test

  4. Commonwealth Superannuation test

The common misconception is that the 183 day (statutory test) is all that looked at. Unfortunately the truth is most cases rely on the ordinarily resident test which considers all your personal circumstances and most importantly, intention. The starting point for the ATO is to trace your physical presence through their interface with Immigration and Border Control, and then have you complete a residency questionnaire that examines everyday facets of your life (answering the “intention” question).
For many of our clients, the advice we now give is it is not a matter of “if”, but “when” you will be audited by the ATO. If this occurs, you want to be absolutely sure you have sought advice and know your position (particularly your tax residency status). When the inevitable question of “how will they ever know” arises, we usually point them to AUSTRAC, explain the data that is being collected and sombre reality that any effort to spend money in Australia can always be tracked.
We recommend anyone that is in this position seeks advice and know where they stand. There are far lower penalties for volunteering this information before an investigation commences ,but once investigations commence, the chances of penalty reduction (in some cases penalties can be up to 100%), diminish significantly.