Individual tax residency and closed borders: COVID-19
By Tony Nunes, Kelly+Partners Tax Consulting
The length of time you are physically present in a country can have an impact on where you are tax resident. More and more countries are closing their borders to help stop the spread of COVID-19. At this stage it is unclear for how long the borders will remain closed, forcing people to shelter in place. What does your location mean for your tax residency?
Australian residents stranded overseas
If you are an Australian resident who ordinarily lives and works in Australia, but you were overseas on a temporary trip when the COVID-19 crisis hit, you are likely to remain an Australian tax resident. This is the case even if you have a lengthier overseas stay than originally anticipated. You should still be subject to tax in Australia on your worldwide income. If you are required to pay tax overseas, you should generally be entitled to a foreign tax offset for any foreign tax paid.
Foreign residents stranded in Australia
If you are not an Australian resident for tax purposes and are here temporarily for some weeks or months because of COVID-19, then you should not become an Australian resident for tax purposes provided you:
- usually live overseas permanently
- intend to return there as soon as you are able to do so.
For those earning employment income while working remotely in Australia, the ATO has suggested that you would not necessarily become an Australian resident for tax purposes. The ATO has stated that it will accept that working in Australia for less than three months will not result in you being assessed for Australian tax if COVID-19 is the only reason why you have remained working in Australia and you were not intending to stay in Australia, but you have been unable to leave. While you are here temporarily, your Australian tax obligations should generally remain unchanged. You should:
- not be subject to Australian tax on income from a foreign source
- remain subject to Australian tax on income that is from an Australian source.
Can you be considered a resident because of being stranded due to COVID-19?
Each country would have its owns residency rules and if you are an Australian resident stranded offshore, you would need to check the local jurisdiction’s rules.
The ATO has identified limited circumstances where foreign residents will become Australian resident for tax purposes. This could occur where:
- you end up staying in Australia for a lengthy period (e.g. more than 183 days); or
- you do not plan to return to your country of residence as soon as you are able to do so.
Also, if you were travelling due to work, your employer may have filing obligations that would need to be understood, should your residency status change.
What you can do to reduce the risk of becoming an Australian resident
If you ordinarily reside overseas, but are currently in Australia and unable to travel due to COVID-19, you should contact your local GGI advisor. There are actions you can take now, in relation to documenting your plans and working arrangements that can assist with clarifying your residency, if required.
Tony NunesGGI member firm
Kelly+Partners Chartered Accountants
Advisory, Auditing & Accounting, Corporate Finance, Tax, Fiduciary & Estate Planning
T: +61 2 9933 8866
Kelly+Partners Chartered Accountants is a specialist chartered-accounting business which assists private businesses, private clients, and families to manage their business and personal financial affairs. The Kelly+Partners tax consulting practice is respected as one of the foremost tax advisory firms in Australia and offers the full range of direct, indirect, and international tax services.
Tony Nunes has over 22 years’ experience in providing tax advice. He has extensive experience in advising clients on issues affecting cross- border transactions, acquisitions and restructures, and in all aspects of structuring the ownership and financing of corporations and their operations.
Published: May 2020 l Photo: Craig - stock.adobe.com