As an Australian digital nomad taxes are something to be concerned about. One of the things you need to know about is the new tax ruling that the Australian Tax Office (ATO). This ruling could shake up your (tax)world. It could mean you’ll pay taxes in Australia even if you don’t live there anymore.
New ruling by the Australian Tax Office
The ATO published a new ruling on 7 June 2023. The ruling gives additional guidelines on tax residency for individuals. These guidelines help you assess if you still owe taxes in Australia or not. The new ruling tries to incorporate more guidelines for, amongst others, digital nomads who travel and work remotely.
Australian digital nomad taxes: tax residency
There are various ways that you can become (or remain) a tax resident in Australia. We’ll dive deeper into each of them and see how those can apply to you.
183-day test
The 183-day test is rather clear from its name itself. The test looks at the amount of days you spend in Australia. Do you spend more than 183 days in the country during an income year (1 July – 30 June)? Then you are a tax resident.
For most digital nomads, this test should not pose any issue. For the simple reason that they will spend most of their time outside of the country.
Ordinary concepts test
You pass the ordinary concepts test if you reside in Australia. Australian tax law doesn’t have a definition of ‘residing’. However, the ATO interprets it as ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place’.
In order to analyse this, the ATO puts forward some elements they look at:
- period of physical presence in Australia;
- intention or purpose of presence;
- behaviour while in Australia;
- family, and business or employment ties;
- maintenance and location of assets, and
- social and living arrangements.
You could say you are already a resident of another country or don’t spend a lot of time in Australia. Unfortunately, this is not sufficient to escape tax residency on this basis.
Although this test is open for discussion, for most digital nomads it is possible to escape taxation on this basis.
Domicile test
The most important test for digital nomads is the domicile test. You will remain a Australian tax resident under this test unless you can show you have your permanent place of abode outside of Australia.
To obtain domicile outside of Australia, you need to have actual physical presence in that place. Furthermore, you should have the intention to make it your home indefinitely. You will agree that this condition is the main concern for digital nomads. Many nomads don’t have a fixed place where they spend most of time. Based on this, Australia can still consider you as an Australian tax resident. This is also explicitly stated in the guidelines of the ATO:
If you move from country to country such that it cannot be said that you are living in a particular country in a permanent way, your permanent place of abode will not be overseas and you will remain a resident of Australia. This is regardless of whether or not you have any dwellings in Australia, or whether Australia more generally can be described as your place of abode.
Commonwealth superannuation fund test
Just like the 183-day test, this test will likely not apply to most digital nomads. Namely, this test applies to employees from the Australian Government who pay contributions to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).
Australian digital nomad taxes: example
I took the following example from the ruling published by the ATO. This shows that if you don’t have fixed place outside of Australia where you live, you might end up still owing taxes in Australia.
Stuart was born and raised in Australia. He separates from his spouse and moves out of the family home, leaving his 4 children in the care of his former spouse. Stuart meets and forms a relationship with a Chinese national. He visits her in China on many occasions. In time, he resigns from his employment in Australia and moves to Nanning, China. There he takes up a 3-month short-term employment contract and advance his new relationship. When this contract ends, Stuart takes up the following further fixed term, short to medium-term, employment contracts in various countries in Asia and moves apartments under the arrangements as outlined, to fulfil these roles:
- Vientiane, Laos – 5 months – living in employer-provided furnished accommodation
- Bangkok, Thailand – 18 months – living in a furnished apartment Stuart rents on a fixed 12-month term and then on a month-to-month basis, and
- Phom Penh, Cambodia – 9 months – living in a furnished apartment Stuart rents on an initial 6-month term and then on a month-to-month basis.
Stuart does not form any social or other ongoing connections in the places in which he undertakes the contracts. Once he leaves a country, he does not return other than for work. Sometimes his partner visits him. Sometimes he visits her or spends time with her in the one to 2-months break he had between contracts.
From time to time, Stuart returns to Australia. Usually for his children’s birthdays or special events. On average, these visits are for a length of a week. When in Australia, he stays with his parents or friends as he no longer has any assets in Australia.
He is not considered to be a resident of Australia under the ordinary concepts test. He is not residing here and intended to leave Australia indefinitely. Stuart has not maintained a connection with Australia consistent with residing here. He has worked and lived outside of Australia for most of the income year.
Stuart is domiciled in Australia so he will still be a resident of Australia. Unless his permanent place of abode is outside Australia. Stuart has abandoned his residency in Australia, but he has not established his permanent place of abode outside of Australia. This is evidenced by his shifting between a number of countries for employment purposes. Therefore, he is an Australian resident under the domicile test.
He is not in Australia for 183 days in any income year since his original departure so the 183-day test does not apply.
Consequences and further attention points
If Australia still deems you as a tax resident, you will have to file and pay taxes in Australia on your worldwide income. If you want to check if Australia still considers you a tax resident, you can also take a test on their website. However, please note that this test is not binding but it gives you a good first indication.
Depending on your lifestyle and how much time you spend in one place, other countries could also still see you as tax resident in their country. This applies even if you already pay taxes in Australia!
Luckily, Australia has double tax treaties with some countries that help you to limit your tax burden. If such a double tax treaty is in place, only one of the countries can claim you as a tax resident. Consequently, the other country needs to back off.
Unfortunately, Australia doesn’t have many tax treaties with places which offer a beneficial tax regime for digital nomads. Therefore, you need to be even more cautious. Worst case, you could even end up paying taxes in both countries if you don’t organize yourself well.
Australian digital nomad taxes: conclusion
I think all of this proves that Australian digital nomad taxes require some attention. This might mean for you that there is no escaping taxes in Australia if you don’t have a permanent homebase abroad. Consequently, you will need to pay Australian taxes. You should also know that another country could still see you as a tax resident there as well. Accordingly, you might end up paying taxes twice if that other country does not have a double tax treaty with Australia.
