Are you a fair dinkum Non-Resident?

With 23AG exemptions no longer available, there have been a vast number of individuals who are wishing to be treated as non-resident for tax purposes from 1 July 2009. The ATO are aware of this, and over the next few years will check the cirumstances of those whose residency status changes. Each case will always be a question of fact, having regard to the circumstances in each case, but there are actions you can take which will help justify your position.

So how do you become non-resident? Unfortunately it’s not as simple as getting on an aircraft – there are four main tests of residency:

1) residence according to ordinary concepts;
2) the domicile and permanent place of abode test;
3) the 183 day test; or
4) the Commonwealth superannuation fund test.

The first two are more relevant for those leaving Australia, and there are lots of examples in paragraphs 31 onward of the tax office publication IT 2650.

In summary, to ensure you are non-resident you need to have set up a permanent abode in an overseas country, and to have broken ties with Australia. Under the self assessment system, it is ultimately your responsibility to ensure you are comfortable with your residency position.

Examples of actions the ATO may expect you to have undertaken are listed below. You should keep as much documentary evidence as possible, including copies of letters to as many institutions as possible stating your intention to leave the country.

YOUR 20 POINT PREDEPARTURE PLAN

1) Take your spouse with you
2) Take your kids with you, only sending then back to Oz if there is a lack of quality education overseas
3) Give your pets away or take them with you
4) Register as a non-resident voter on the electoral roll
5) Close Australian bank accounts, credit cards and store cards where possible
6) Write to banks and share registries informing them of your non-resident status in order that withholding tax can be deducted
7) Change your mailing address to the overseas address for as much mail as possible
8) Tell Centrelink you have left & Suspend your private health insurance
9) Do not claim Medicare benefits – you are ineligible for benefits after 5 years away
10) Apply for overseas health insurance
11) Rent your house out and register for land tax if applicable
12) Consider not renewing your driving licence
13) Avoid having a pattern of returning which would indicate you have not broken all ties with Australia. It is the pattern, not the number of days that is important.
14) Holiday elsewhere
15) Do not return permanently for at least 2 years
16) Set up a permanent home overseas
17) Join clubs, open bank accounts and apply for store cards overseas
18) Apply for permanent residency overseas if possible
19) You and your spouse should file non-resident tax returns whilst away
20) Close or restructure your SMSF before you leave