Residency
Determining your residency is important as it can determine which country (or tax jurisdiction) has rights to tax the world wide income received by a person.
Residency will determine which country has rights to tax income ‘earned’ in a particular tax jurisdiction and income received (not earned) by a person (such as dividends or interest). To make it more complicated, different countries ( tax jurisdictions) may tax passive and earned income, or both may tax the same income.
Australia has double tax treaties or agreements with various countries to ensure either foreign tax paid is refunded as a tax credit or some other mechanism to ensure no double tax arises. Australia does not have these tax treaties with all countries.
HOW DO YOU DETERMINE RESIDENCY.
The easiest way to think of your residency is where your home or ‘ties’ are, factors such as location of your personal residence, spouse, children, personal assets, time of stay each year, friends, extended family, personal bank accounts, superannuation accounts, your personal wealth assets, election rolls, health care, and many more factors are used to assist in determining residence. However where people have two main countries they visit on repeat occasions then determining residency can be difficult. A case involved a hong kong resident with a spouse and children in Australia but was a senior management person of a business in Hong Kong and spent more time of the year in Hong Kong than in Australia, he was held to be a Hong Kong Resident and not an Australian Resident, however there were many factors that were considered other than those detailed here to arrive at the decision.
Thee factors are a question of fact not law. Guidelines and previous cases, click on this link to our <Residency Guidelines & Checklist>.
To see what the ATO has to say about Residency see the <ATO-Link> . There is a <Tax Residency Tool> you can use to assist you, or you can seek our professional advice.
RESIDENCY AND COMPANIES
An Australian Company will always be a Australian Resident, however it could also be a resident of another country (tax jurisdiction) if the directors and central management and control moves from Australia to another tax jurisdiction. Like residency for individuals it is a question of fact not law. Also like individuals, where double tax treaties exist they assist in providing guidance to the tax jurisdictions on taxing authorities.
If you own or have a substantial shareholding in a Australian Company and you personally take up residence in another country and are considered to be a resident for tax purposes of that country and not an Australian tax resident) and commence to receive consulting income from the Australian Company then the consulting expense incurred by the Australian Company will be a income tax deduction. Further where you determine your residency to be outside of Australia and the income is earned whilst you are outside of Australia then you will be subject to the tax jurisdiction in the country of residence on the consulting income. However the Australian Company must ensure it complies with the International <Transfer Pricing Rules>.