Tom was born and educated in Australia and works as an engineer. He recently married Mary who is from Italy but is in Rockhampton on a student visa completing a Master of Business Administration Degree from CQ University. She arrived in Rockhampton on 1 May 2021 and will complete her degree in August 2023.
Tom is in charge of the strategic planning operations of his employer. He has been asked to consider working overseas for 24 months in the Dubai office of his employer. He is keen to work in Dubai as the UAE does not impose income tax on salaries. His new role will include travel overseas to Europe and Asia as well as Australia twice a year. Under the arrangement he will be employed by the Hong Kong Office of his employer and his salary will be paid in part into his Dubai bank account and the other part into his Australian bank account. The contract for his new position in Dubai was signed in Melbourne.
Tom advises you that he is currently renting a house in Rockhampton with Mary and will be giving up that lease. He also owns a car which he will be leaving for his cousin to drive and maintain. The only other assets he has are superannuation from his employer and employee shares. He has a bank account with Westpac into which his pay is credited.
Whilst in Dubai he will be given rental accommodation by his employer, he will open a bank account in Dubai to receive his pay, belong to various expatriate and social organizations and he will join a class to learn Arabic.
Mary, however, will be unable to work in Dubai so she intends to return to Italy and work there and visit Tom every 8 weeks in Dubai. Both Tom and Mary leave Australia on 24 August 2023 for Dubai.
REQUIRED:
In your answer you are to refer to the relevant legislation, tax rulings and case law. In particular you may wish to refer to the very recent public ruling from the ATO, TR 2023/1. Remember the ATO does not make law but the ruling is a very good guide as to how the ATO will interpret and apply the current law in this area.
In the globalized world of today, individuals often find themselves navigating complex tax implications when working abroad. This essay examines the tax residency status and income source of Tom, an Australian engineer who is considering a 24-month work assignment in Dubai, UAE. The analysis will be based on the relevant legislation, tax rulings, and case law, with a focus on the recent ATO public ruling TR 2023/1.
Tom’s tax residency status for the year ending 30 June 2024 will determine his obligations towards the Australian tax authorities. According to the tax law of Australia, an individual’s residency is determined by various factors, including their physical presence, intention, and the “resides test.” This test considers whether an individual resides in Australia and does not have a permanent place of abode overseas. In Tom’s case, the fact that he has left Australia for a work assignment in Dubai does not automatically make him a non-resident for tax purposes.
However, the ATO’s recent public ruling TR 2023/1 provides guidance on tax residency in light of COVID-19-related travel restrictions. This ruling considers the impact of “temporary absences” due to travel restrictions on an individual’s tax residency. If Tom’s departure to Dubai is influenced by such travel restrictions and he intends to return to Australia once these restrictions ease, he might still be considered an Australian tax resident. Therefore, Tom should carefully assess his situation against the criteria outlined in the ruling to determine his residency status.
If Tom wishes to establish himself as a non-resident for taxation purposes, he should consider taking the following steps:
Ceasing Australian Domicile: Tom should demonstrate his intention to sever significant ties with Australia. This involves disposing of his Australian residence and canceling his lease in Rockhampton. By doing so, he weakens his connection to Australia and enhances the argument for non-residency.
Establishing a Permanent Home Abroad: Tom should establish a permanent home in Dubai, which includes obtaining rental accommodation provided by his employer. This step aligns with the concept of having a permanent place of abode overseas, further supporting his non-residency claim.
Family and Personal Ties: While Mary’s visits to Dubai every 8 weeks might indicate strong personal ties to Australia, Tom should ensure that he and Mary maintain a significant presence in Dubai during his assignment, minimizing the appearance of a “resides test” link to Australia.
Financial Ties: Tom should consider transferring his assets, such as the car he owns, to his cousin or selling it before departing for Dubai. Minimizing financial ties in Australia would contribute to his non-residency status.
When Tom commences work in Dubai, the source of his employment income becomes a crucial consideration for taxation. According to the principles established in case law and tax rulings, employment income is generally sourced to the location where the services are rendered. In Tom’s case, as he will be working in Dubai and receiving his salary there, his employment income is likely to be sourced in Dubai.
It’s important to note that the fact that Tom’s salary will be paid partly into his Australian bank account and partly into his Dubai bank account does not necessarily change the source of income. The source is determined by where the services are performed, not where the funds are deposited.
In conclusion, Tom’s tax residency status and source of employment income present complex considerations as he embarks on a work assignment in Dubai. While the ATO’s recent public ruling TR 2023/1 provides guidance on tax residency during travel restrictions, Tom should carefully evaluate his ties to Australia and his intentions to establish non-residency. Additionally, his employment income will likely be sourced in Dubai, reflecting the location of his services. Tom should seek professional advice and ensure compliance with Australian tax laws and regulations to navigate these intricacies effectively.
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