Leaving Australia for Tax Purposes?

Unknown · 00:00:00Jason: Welcome to another episode of The Numbers Game. I'm Jace. I'm here with Nick. And a quick shout out to our drink sponsor, Carmen Stormy, who unofficially have got on board and sent Nick and I, uh, about 20 slabs of calm and stormy. So cheers, mus.

Unknown · 00:00:13Nick: Yes. And um,

Unknown · 00:00:14Jason: thank you Carmen Stormy

Unknown · 00:00:15Nick: averaging one an episode at the moment and no intentions are slowing down.

Unknown · 00:00:18I, I'll tell you.

Unknown · 00:00:19Jason: No, no. Um, sensational just, just water though. I mean, even though it is. Friday at time of recording. And sometimes we talk about having a Friday arvo beer, but we'll stick to the calm and stormy. Do they

Unknown · 00:00:27Nick: have an alcoholic one, Jace?

Unknown · 00:00:29Jason: No,

Unknown · 00:00:29Nick: no,

Unknown · 00:00:30Jason: no. But the lemon lime one, uh, does go good with a little bit of vodka crew.

Unknown · 00:00:34The, no, we can't talk about that online. We'll get back to the real reason we're here. And Nick, I, uh, I'm, I don't know if I should say, I'm excited to unpack this episode and talk about it. Um, there's a, there's a lot of activity online as we know, and we try not to get too bogged down in social media and influencers and whatnot.

Unknown · 00:00:51And sometimes some of the information that's put out there is great and you learn, and it might be, you know, the particular food you should eat or, you know, a tax tip. Um, but there's a bit of activity online and, and I'm interested to see whether you've seen it around. Moving out of Australia to avoid paying tax or, you know, Australia's, you know, we, we get taxed too much here.

Unknown · 00:01:11I'm sick of paying tax in Australia, so I'm gonna leave and go to somewhere like a Dubai or a Singapore. Are you you seeing or hearing much around All the

Unknown · 00:01:18Nick: time. Yeah. I was thinking about doing it.

Unknown · 00:01:19Jason: Oh, perfect. Well, I'm, I'm about to, I'm about to give you the playbook on how to do it. Oh. Well, kind of

Unknown · 00:01:26Nick: you are, you are seeing a lot of it.

Unknown · 00:01:27It's definitely a trend at the moment and uh, as we know nowadays, we, we get exposed to a lot more through social media. Mm-hmm. And I think the people that are actually, um, going overseas to live the ones that are, you know, have built their lives possibly, or their income through social media. So the exposure's high and, um, I think gone are the days of.

Unknown · 00:01:49Thinking people went there to build infrastructure. Yeah. Which used to be why people went there, you know, got exorbitant salaries to build infrastructure. But you've got people that I guess are, are they not earning particularly just in Australia? They're earning

Unknown · 00:02:02Jason: Yeah. World worldwide income. Yeah. You know, let's say you are running an online business and you know, you, you don't need to be here in Australia to service your customers.

Unknown · 00:02:09Um, you know, there's the potential there. Like let's say business coaches, life coaches, yeah. Professional services where there isn't as much of a tie to Australia

Unknown · 00:02:17Nick: glamorous over there.

Unknown · 00:02:18Jason: Yeah. Well, I mean that's the, to be Yeah. That's what we all get told. But yeah, I mean, look, I mean, just off the bat, this, this comes up because I'm having a real life conversation with a particular client group of ours that is moving to Dubai.

Unknown · 00:02:29Nick: Yeah.

Unknown · 00:02:30Jason: Um, so, you know. I try and take, as we both do, we, we see things that are happening in, in future advisory and innovate, and we go, this is actually relevant to discuss with, with the audience. Um, our audience that tune in each week and was talking to this particular client, he actually said him and his business partner went out for pizza.

Unknown · 00:02:46The pizza cost a hundred Australian dollars for them to have a basic pizza. Or they said, sorry. He said it was a really good pizza, which I said it would wanna be for a hundred dollars. And he goes, the next morning they went out for two coffees and cost 50 Australian dollars for the coffee. So I'm starting to think like these people that promote and spruce online about moving to Dubai and these places to pay less tax.

Unknown · 00:03:07But the planning that needs to go into it, which is what I want to kind of unpack a little bit today, that the planning that goes into it needs to go beyond, I wanna pay less tax, or I don't wanna pay tax in Australia. The things that you also need to do to then not have the A TO watching out for you. So.

Unknown · 00:03:23There's this idea that you can leave the Australian tax system or you can leave Australia. Sorry, but you can't leave the Australian tax system that easily. Um, so I want to go into a little bit of detail about what type of things you'd need to do to realistically separate ties from Australia and not fall under the resident tax system.

Unknown · 00:03:41So. Look, and as we touched on the reasons why people might go lower tax, better lifestyle, more freedom, but I don't know, we're, I think we're pretty lucky here in Australia apart from obviously we've had that episode about tax before and uh, we are taxed quite high potentially, and there is the rising cost of living now plus interest rates.

Unknown · 00:03:58And, uh, people obviously think our government aren't doing the best job, so we won't go into that though. Um, so what I do want to talk about though is if you leave Australia, do you stop paying tech tax? So just from. Very high level. Nick, what would you imagine if you were to move overseas, essentially the day you leave the country?

Unknown · 00:04:16You know, why would you, why would you have to pay tax in Australia? Like what, what would your perception or understanding be at the moment?

Unknown · 00:04:22Nick: Yeah, so the perception for sure would be no tax in Australia. Uh, I'm not utilizing any services over there and I now live in Dubai. That's who supplies me services and things.

Unknown · 00:04:36Um, so I would pay taxes there. Dubai, isn't it?

Unknown · 00:04:41Jason: Okay.

Unknown · 00:04:42Nick: Yep. Yep. That to me seems common sense.

Unknown · 00:04:43Jason: Yep. Yeah. And correct. I think a lot of the times what we think is common sense doesn't necessarily go hand in hand with, uh, what the A TO do. So from a what a TO tracks and what they look at. And then I'll run you through the residency tests, but the a TO will be looking at things like your travel movements.

Unknown · 00:04:59How often are you moving back and forward in and out of Australia? They'll be tracking your bank accounts. Have you kept an Australian bank account where. You're moving money back into Australia or moving money out of potential business here. Um, OECD, um, which is the global, um, banking background. They, they share data.

Unknown · 00:05:17So if you do have a bank account in Dubai. The a TO is actually getting that data as well. So, you know, just 'cause you've moved to Dubai and you're earning money over there, not paying tax doesn't mean the a TO don't have that linked back to here. Um, anything that's TFN linked. So if you've still got shares or investments that register your TFN, like a, a managed fund or ETFs that's still being tracked.

Unknown · 00:05:39Your assets and your family connections are ongoing. Things that the HO will monitor as well. So if you've left the family home behind and you didn't sell it. It starts to look like your intention isn't to have Le leave Australia permanently and no longer return as a resident. That looks like you've gone, if you sold your home, if you keep your home, and even worse, if you leave your spouse and kids behind the a TO is then essentially going, Hmm, you haven't really left Australia behind to separate ties because you've left a home spouse, kids, potentially a business where you were a director, but you're still operating through that business and then the source of your ongoing income.

Unknown · 00:06:14Mm-hmm. So if a lot of your ongoing income is generated in Australia and you think you can just funnel that over to Dubai. We start to have, uh, some issues there. So the residency tests, you know, the big one is the resides test. So it's around your, your home, you know, where is your address that you live in?

Unknown · 00:06:31Um, how often are you there? Like, do you live there day to day where your family is? And then your routine and lifestyle. So this particular client we were talking to, they're, they're going about this properly in a sense. There's a few extra steps to go, but they, they've put their family home on the market 'cause they're gonna sell that and the husband, wife, kids are all moving to Dubai and the family home will be sold.

Unknown · 00:06:52This from an A TO perspective looks much more like someone who is leaving Australia and will have no connection. To be able to pay Taxo as a resident, Australian resident, they look like, and that's the big one. So the next example though is the domicile test. So it's all around where your permanent home country is or where you're considered a tax resident.

Unknown · 00:07:14And the key thing is, have you kept enough ties to. Like, do you have a place you can come and stay here, like an apartment or a home? And if you're back here often enough, the next step is the 183 day test. So atos got all these little mechanisms, but if you, let's say you move to Dubai, but you're in Australia for 195 days.

Unknown · 00:07:35Out of a full calendar year, the a TO is gonna go, you haven't met the 180 3 day test you've been in Australia for more than those days. We're taxing you here regardless of your income going to your Dubai bank account, or Singapore, or wherever you've chosen to call home. So they're the top three tests.

Unknown · 00:07:54You know, resides where your home is. Um, the domicile test, which kind of linked, and then the 180 3 day test. Again, they're all about where you spend your time and your connection. Another big one is intent. HEO always loves the intent. There is a fourth test, which is less relevant, but it's around government workers.

Unknown · 00:08:12So you imagine your, um, department of Justice or um, Australian Federal Police and you get posted to, let's say Papua New Guinea for three years. Even though you're in Papua New Guinea for three years, you are still being paid into your superannuation. So for government employees that continue to get their super paid in Australia, that will connect you to be a resident for tax purposes.

Unknown · 00:08:34Nick: So it's about, um. A lot of the underlying message I was getting there was intention. So if you are, it sounds like if you're, if you're doing this to try and evade tax possibly, or try and look like. I'm not gonna be an Australian resident, but I really am. They will work that out and it's, you know, it's more about what you're actually intending to do, what not, what you're trying to appear to be doing.

Unknown · 00:09:02Jason: Yep. Correct. Yeah. Correct. Yeah. Intention is one of the biggest words with the a TO too. Yeah. Like, uh, you know, your intention, especially around your main residence exemption, so if you do keep your main residence and you rent it out and you go and live overseas, well all of a sudden your intention looks like you've kept your main residence.

Unknown · 00:09:18You're getting the six year main residence exemption rule. Um, it probably looks like you're gonna try and come back at some point, so you haven't really severed ties if you keep your Australian phone number. So if you're in business here in Australia and you're a director of a company and you keep your Australian phone number and bank accounts again, doesn't really look like you've severed ties with the Australian tax system in that way.

Unknown · 00:09:38So there's a few of those ones, and there's also a couple of big ones that people miss regardless of whether it's. Going to Dubai, not Paytex. These are just some big ones where people may leave Australia for a few years and maybe their intention, they don't know if they're coming back, but they've separated all ties, closed bank accounts done as much as they can.

Unknown · 00:09:56But the big one is your hex or help debt. So even if you leave Australia and you have a hex or help debt, that will follow you around the world and the expectation is that you will still lodge your Australian tax return, um, because you've still got A TFN, you're still formally an Australian. Citizen, an Australian resident.

Unknown · 00:10:13So you go to Dubai, Nick, let's say you've met every other test and you're not an Australian resident for tax purposes, and you earn 200 grand, you will also lodge an Australian tax return. You'll say, I'm not a resident for tax purposes. You'll put in that you earn 200 grand, you'll pay no Australian tax, but you'll pay your help repayment calculated on a $200,000 taxable income for help surcharge purposes,

Unknown · 00:10:38Nick: right?

Unknown · 00:10:38Jason: So. That's a big one that we've had people miss before and when we've reached out to them to say, Hey, it's time to lodge your annual tax return, they, oh, no, I'm overseas. You know, I'm working in London, or I'm working in New York, and we're going, cool. Just tell us your tax. Tell us how much income you made.

Unknown · 00:10:54Over the Australian tax year, and they're like, well, hang on a minute, what do you mean? Like, I'm, I'm not in Australia. So that one catches people out and then often we're sending a bill for at least 10 grand depending on what they're earning. And that's chipping away at their, they helped debt that the Australian government doesn't wanna let you, uh, leave with.

Unknown · 00:11:09But to be clear, yes,

Unknown · 00:11:11Nick: there's no outside, there's no tax though.

Unknown · 00:11:14Jason: No, there is no tax. As long as you're satisfied that you're not an Australian resident for tax purposes,

Unknown · 00:11:18Nick: yeah.

Unknown · 00:11:18Jason: You won't pay tax on your global income. Yeah. You'll pay, you'll be paying that. Where you are now a resident for tax purposes. So London, New York, Dubai.

Unknown · 00:11:27Nick: Yep.

Unknown · 00:11:27Jason: Um, it's just the help debt is a, is that big one that people forget about is when they leave the country, they'll go, I'm done now. All good.

Unknown · 00:11:35Nick: Yeah. It's, it's, it's, it's a loan. It's not a tax. Correct. So yeah, they want to, yeah, it's, yeah.

Unknown · 00:11:41Jason: Yep. So still want that page.

Unknown · 00:11:43Nick: That makes sense to

Unknown · 00:11:43Jason: be. And another big one that, you know, catches a few people out.

Unknown · 00:11:46You know, they've got this genuine intention to leave Australia and not come back. So let's say that was you, Nick, and you were gonna go, um, let's say you've got a couple of hundred grand in superannuation, you have no intention of coming back to Australia. Um, would you like your superannuation?

Unknown · 00:12:01Nick: Well, it's mine, so yes.

Unknown · 00:12:02The answer is yes.

Unknown · 00:12:03Jason: Yeah, you can't have it.

Unknown · 00:12:05Nick: Yeah.

Unknown · 00:12:05Jason: Not until you're 65 or not until you reach one of the preservation age or one of the tests to get it out. Yeah. So generally turning 65 in the past, reaching, preservation, age or retirement, um, few extra ones might be terminal illness. If you can prove that you have serious medical condition and go through that, um, that not a loophole, go through that route.

Unknown · 00:12:23Yep. Otherwise severe financial hardship or compassionate grounds. So, but apart from that, that was an interesting one, having this conversation with a, um, with a client that wants to move over to Dubai and ties with Australia. Again, doing all the right things, but this perception of, well, I'm gonna take my super as well and invest it over there 'cause that's my life now and I have no intention of returning to Australia.

Unknown · 00:12:44And, and unfortunately that was, uh, one of the ones that kind of was like, oh, okay. Um, wasn't expecting to not. Be able to take my retirement wealth that I've been saving. Yeah. But no, that's, that's trapped in the Australian system.

Unknown · 00:12:56Nick: Mm.

Unknown · 00:12:56Jason: The only time where some people might go, oh, hang on. But I've heard of people releasing it is if you weren't born in Australia or you weren't an Australian citizen, basically from day one when you opened your super fund, if you were a working holiday maker, so let's say you're born in London, you came to Australia to work for a couple of years as a backpacker, you might have got 20 grand in your super fund.

Unknown · 00:13:17You can. Exit the Australian superannuation system, but I'm pretty sure it's taxed something like 40 something percent on the way outta the country. So, um, they still take their slice of that, but they're the only people that really can exit the super system.

Unknown · 00:13:32Nick: Yeah, and I, I guess now in this day and age with open data and um, the access that the likes of the A, you just can't get away with this stuff.

Unknown · 00:13:48Tracking bank accounts. Yep. And you know where you're spending your time, how are you spending your money?

Unknown · 00:13:52Jason: Yep.

Unknown · 00:13:52Nick: Whereas prior. To the current environment. That would've been very difficult for the a TO to do. Not saying they could, could not have done it if they wanted to, but the resources that would've went into that, such as if they wanted to investigate someone understanding flights, hypothetically, how do you work all that out?

Unknown · 00:14:12You, there's a process to go through getting access to bank statements.

Unknown · 00:14:15Jason: Mm.

Unknown · 00:14:15Nick: Now moving towards a digital identity, it's almost like you're wearing a tracker.

Unknown · 00:14:21Jason: Correct. We, we've got a little myGov ID that pops up whenever we try and log in and outta the system. So the, you're right. And that is the, the sophistication and the amount of data that, that is now being shared all around the world.

Unknown · 00:14:33And specifically for our example into the A TR, I mean, we had an episode, it was 600 million data points per year. And that was a few years ago, and it's only increasing more and more each year with the amount of data points fed in. And then beyond that, you think about, you know, people out there using chat, GPT and Claude.

Unknown · 00:14:51Think about how far AI has come in the last two or three years. The A TO are only just kind of catching up on data from four or five years ago and catching people out. But it's only a matter of time before they're gonna have the ability to turn on even more powerful AI and technology to rip through all the data to go.

Unknown · 00:15:07Flags, flags. And then the next problem will be like always the, the human intervention to be able to go and tackle the particular problem. But, you know, why, why are we seeing this as a problem or why is

Unknown · 00:15:19Nick: just a question first back on the trying to determine where you actually land.

Unknown · 00:15:23Jason: Mm.

Unknown · 00:15:23Nick: If so hypothetically I go to Dubai.

Unknown · 00:15:27Jason: Yep.

Unknown · 00:15:27Nick: I've got an owner occupied house. Yep. I don't wanna rent that out because I don't want tenants in there. I wanna keep that as an asset because one day if something goes wrong in Dubai, I want the ability to come back. Not the intention, but the ability. Is there a, a hard line as to, okay, we, you know, you've gotta declare that you've spent this much time in Dubai, or I'm just picking to buy 'cause that's what we're talking about.

Unknown · 00:15:52Is there a hard line as to. If you spend this amount of time in this country, let's say you're earning a global, you are earning your money in a couple of different areas. Like how, like how do, what's the actual, because intention's gray. Mm-hmm. Right? So what is the actual rule for someone? We might see on social media that's got a global income that says they've got a property here, but they'll, they are a Dubai resident.

Unknown · 00:16:18Is there a hard and fast rule?

Unknown · 00:16:20Jason: No, there's, there's no clear, crisp answer each, each case, like everything, uh, especially with the a TO and, you know, innocent or guilty until proven innocent for a lot of the things that happen with the tax system. Mm. But it'll be, each case by case needs to be assessed, you know, how did it come about?

Unknown · 00:16:34Why was it done? What was the initial intention? You know, what is your longer term plan? What are you gonna do with the property if your intention's not to come back, but you're not renting it out? There'll all be questions that you have to answer and, and essentially working your way through the test is only one part of it.

Unknown · 00:16:49And then it'll, there'll be a flow on effect. And, and again, a lot of it, again, the, you can get an advisor that tells you one thing, but if the HEO come and unpack it and go, no, we, we think that you should have been lodging a taxes as an Australian resident. Yeah, we wanna tax your global income. You then have to make the fight to fight that, to prove that they were wrong.

Unknown · 00:17:07But if you've held onto your property, they're probably gonna say, well, well our argument is you've got a property here in Australia. Yeah. You wouldn't have kept it if you weren't intending to come back. So we want to touch you as an Australian resident.

Unknown · 00:17:18Nick: Okay. And then, and just another question regarding that, and this is pivoting a little bit

Unknown · 00:17:23Jason: of course,

Unknown · 00:17:23Nick: but if you did have income in a couple of different countries, so you know, you were deriving income, uh, in Australia at the same time as other

Unknown · 00:17:31Jason: Yeah.

Unknown · 00:17:32Nick: How was that? Treated,

Unknown · 00:17:33Jason: yeah. You lodge a tax return here as a foreign resident for tax purposes.

Unknown · 00:17:36Nick: Okay. Yeah. And how's the tax rates on that? Is it the same or different?

Unknown · 00:17:38Jason: Nah, it's basically starts at 32 and a half cents, right? You, you don't have a tax free threshold, right? You don't have the 16 cents or 19 cents.

Unknown · 00:17:44It basically starts up in the thirties.

Unknown · 00:17:46Nick: So what I'm getting at is. It could actually hurt you.

Unknown · 00:17:50Jason: Yep,

Unknown · 00:17:51Nick: correct. Possibly,

Unknown · 00:17:52Jason: depending on, yeah, especially if you've got like a, a great share portfolio. But then you also think about, we've had ones where people have moved overseas, and this is why part of this episode, the idea is, it's not to say don't move to Dubai or don't move overseas, but it's to say.

Unknown · 00:18:05If you are going to do it, make sure you have a clear plan with an intention, a reason, and you map out all of the things that can or can't go wrong and what can happen. But one of the ones that we've seen that really hurts people is they've had an opportunity to go take a job overseas. So they, they thought they would return to Australia.

Unknown · 00:18:23So that's probably 0.1, is that thought that you would, would return, so you leave the main residence, you leave the investment property, or you might rent the main residence out and then all of a sudden they, this particular example, which was like. Devastating. They were gone for more than six years, and then without talking to their advisor, they sold both their properties back home because they, they decided we're probably not gonna come back.

Unknown · 00:18:46Now from a tax perspective, foreign resident tax rates, no capital gains discount, and then their main residents went outside of the six years, so cop tax as well. The tax outcome on that was devastating as opposed to returning home. Moving into the property, becoming an Australian tax resident again for tax purposes, and kind of settling in for a bit to go, is this what I want?

Unknown · 00:19:09Maybe my intention might be to return. I've taken a bit of a break. And then again, it's all about how you work the system in your favor, but moving back into the home to reactivate your main residence exemption, then selling it would've saved a ridiculous amount of tax. Mm. Um, but instead, so again.

Unknown · 00:19:25Mapping these things out is one thing, but having a plan, the what if scenarios with an advisor with a tax, um, tax professional, um, goes a long way. So I was just gonna touch on like why we're seeing a bit of activity in this. So the HEO basically has well in excess of a $50 billion tax, uh, debt book. So they're owed a lot of money.

Unknown · 00:19:47They're getting government pressure to collect that income. Then they're going, well, okay, well, well, where are we looking? How are we gonna collect, uh, more income? So this increasing enforcement is around chasing global income. So people who are are have income global sources that aren't declaring it in Australia.

Unknown · 00:20:03The a l wants to crack down on that. Now, you'd think they could look at the. Bigger businesses that have billions in revenue and are significant global entities. But Nick, sometimes that's too hard for the a TO to fight that. Then they get lawyers and it's stretched out. Sometimes the easy wins are the individuals and the small business owners that are trying to gain the system or trying to get a win without paying tax and to go after these ones, you know?

Unknown · 00:20:27And, and it's, it's pretty crazy. I mean, um, the de there's departure, prohibition orders that stop people from leaving the country if they think that you are going overseas. Earning income over there and not paying it, and you've come back in the country and they wanna question it and come after you, they'll stop you leaving the country until you can argue your case and plead your case that you know that you aren't doing anything wrong.

Unknown · 00:20:47So this is really important to get right. I mean, I've touched on the silly things or not silly things like a help debt repayment or you can't have your super, but if you are planning on leaving. You gotta work through all these steps to make sure you get them right. Um, and it's not as simple as, well, I'm just gonna go over to Dubai and set up a company and pay tax there, and then I'll return to Australia after I've made money for a couple of years.

Unknown · 00:21:08There is more nuance to it and it's definitely worth understanding what you need to know before you go. 'cause again, some people just kind of. Assume that it's a lot easier than it is. Mm-hmm. Um, and like anything with what, what I do in tax land, yeah. It's never as easy when the HEO, uh, are chasing money and they've got a debt book to close.

Unknown · 00:21:27Nick: Yeah. Yeah. It's, um, the more complicated they make it, the better for you.

Unknown · 00:21:32Jason: In theory. Yeah, Nick. Uh, I wish that was the case, but I mean, and even in, in doing this, I mean, we learn something new all the time too. I mean, I didn't know if pizza cost a hundred dollars or two coffees were $50. So that's been fun.

Unknown · 00:21:43And um, even setting up a company, I think it was something like $30,000. To from start to finish to get a company set up over there. Yeah. And even, um, as these things become more common, learning that to get the 10 year visa, you have to buy a property. You, one of the options is buying a property for over $750,000 and then you activate a 10 year visa to be able to live and work there.

Unknown · 00:22:05So there's all these little things that we learn. I mean, in, in future advisory land, we definitely don't say we're international tax experts. Yeah, we wanna stay focused on the Australian market. But as these things start to become more common. We obviously expand our, our skills and knowledge to make sure we can at least have the high level conversations with our clients, uh, and give them their options.

Unknown · 00:22:24Nick: Awesome.

Unknown · 00:22:25Jason: I reckon that, uh, pretty much wraps this up, Nick. I think, uh, you know, if, if this has pricked your interest and you're thinking about a, a trip to Dubai to pay less tax, or maybe it's Singapore, maybe it's Bali, but, uh, definitely speak to a professional first. Work through the, uh, pros and cons and, and the steps to make sure that you are setting yourself up for success.

Unknown · 00:22:43Nick: So in closing, Jace, you can run away from Australia. You can't run away from the a TO game artist.

Unknown · 00:22:49Jason: This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, you consult a licensed professional.

Unknown · 00:23:02Individuals on the podcast may hold positions in the companies discussed. ---