Hey guys on today’s episode of Compare Return we’re going to be talking to the Aussie Expats amongst us.
Last Tuesday the latest budget was released and it contained some very interesting proposals for the way the ATO wants to handle Australian Expats with two main proposed changes are; the first one being the bright line test and the second one being the adhesive residency test.
What are these changes, how do they affect you as an Aussie expat and is it time for you to change your residency, you know hand in the Australian passport and pick up another one. This is definitely going to make things a lot more stressful for Australian expats that’s for sure.
Make sure you watch this video all the way to the end because we’re going to show you a great trick you can use to make sure you’re staying up to date with the current news coming out of Australia. Let’s get into it in a bit more detail.
This is the current structure. The first thing I wanted to do was to bring you back up to speed on the factor test so this has four main components so the first component is where do you reside, which is basically where do you live. Do you know if you live in Australia or do you have another residency in another country? The second one is the 183 day rule, which is do you spend more than 183 days in Australia.
The third one is the superannuation test, so what that means is if your current employer is meant to be paying superannuation contributions. So, if you’re working in Papua New Guinea for an Australian company and they’re meant to be paying you superannuation and they’re not, then you know you might pass the test, in other words you might be an Australian resident.
Even if you’re claiming you’re not.
The fourth one and the most tricky one is the domicile rule or kind of the intent to return rule. What this speaks to is do you have clear ties back to Australia or intend to return to Australia, or is there anything the ATO can use to basically claim that you’re an Australian.
So this sounds ambiguous and that’s because it is, and it’s something that the ATO quite often trips people up on. Things such as having dependent children back home in Australia or a spouse or family member back in Australia, that’s a main one.
Say if you’ve got a house back in Australia and you’re not renting that out then the ATO can then claim that that property is somewhere you are intending to return back to in Australia, it might be something as tenuous even as a phone bill taking out a landline contract or an internet contract. You know that ATO might say that you know that’s a clear intent for you to be returning to Australia.
So that’s the current structure, okay.
So the main proposed changes that we’re going to be seeing is the first one is what they call the ‘bright line test’ so what they’re saying now is that if you spend more than 45 days in the country you might be an Australian resident again or if this law gets passed you will be an Australian resident.
Again, even though this might seem like a very short window, this one is kind of I guess, welcome for lack of a better term, it’s being welcomed by a lot of tax experts because it’s something which is very clear and easy to understand and it’s also something which is used in other countries. You know you see this back in the UK or in the USA have similar things in place so that’s the first change is the bright line or 45 days in the country.
The second one which is got a lot of experts stumped is what they’re calling the ‘adhesive residency rule’ so you really want to be paying attention to this one guys if this comes in it’s definitely going to shake things up a lot so the idea of the adhesive residency is that your tax residency actually clings to you for up to three years after leaving the country.
Now from all our research and you know looking online we can’t really seem to see any other countries which employ a system similar or exactly like this so how they actually get this through or what it looks like when it becomes law is going to be very very interesting. Looking back to the 2019 proposal the term adhesive pops up about 42 times, I believe, now let me check exactly what it was. It was 35 times adhesive pops up, so this very well could be something that they’re looking to sort of shoehorn into the next changes.
So stay aware of that one, if you’re an Aussie expat and you’ve had or you are an Australian resident who’s been working offshore guys what you might be looking at doing now is really this might draw a line in the sand for you. You know, it might be time to make that decision, you know if you’re maybe separated from your husband or wife, if your children and our adult age and you know you might be working you know six months in PNG mining contract or an oil and gas contract in the Andaman sea or wherever it happens to be or IT jobs internationally, this might really push you and make you take the jump of becoming a fully fledged expat, and if you’re going to do that maybe sooner rather than later might be better to try and make sure that this adhesive tax laws don’t kind of get you dragged into them as well.
So when could we see this coming into law none of us really know i’m you know if this was really really rushed through it could be as soon as July 1st if it’s sort of following the more traditional paths we probably won’t see this coming into effect until you know 2022 or 2023 but at the moment we really don’t know.
So one thing to keep in mind too is that if this were to be passed through, you know a lot of Australian expatriates might fall foul of it by default you know having a property back home in Australia. You know things such as the current, which is obviously the elephant in the room, the current COVID-19 situation what do we do you know if you go back to Australia and you’ve got a 14-day quarantine you know you’re not going to spend get to spend a whole heap of time with your family, if you’re on holiday.
Or if you’ve got continual business trips you know that might get you unstuck.
As well the other thing we’ve got to take into consideration is what happens if these tax laws get passed while you’re stuck back in Australia. You know we were told to return back home, if possible now getting out of Australia seems impossible, what happens if tax laws get changed while you’re back in Australia. When you don’t want to be there that’s going to be a very tricky one and something to pay close attention to as well.
So a lot of Aussies might be feeling at a loose end, you know, if you are a seven or eight figure expat and you know you’ve been playing with the idea of picking up another citizenship you know another passport maybe in the EU, this might be the deciding factor that makes you take that plunge guys.
The Australian passport isn’t particularly strong for international travel when compared to passports like you know the US or a lot of EU or UK countries and with the changes to the ATO’s tax laws this might be just the thing that gets people to relinquish their Australian citizenship.
I did say that I was going to give you guys a good trick to stay up to date and that is as follows i want you all to be setting google alerts in your inbox follow the page which we’ve got up on the screen now this allows you to set email alerts so you might want to set a couple keywords such as ATO and Expat, or ATO Expat change, this what that means is that in your inbox if any news articles pop up with those key terms in them it’ll send you an email alerting you to this so that’s a really good and easy and free way to stay up to date guys.
Thanks for watching, I hope you enjoyed today’s video. See you later.