- As a nomadic entrepreneur, you don’t want to pay unnecessary taxes. That’s why you take precautions when leaving your home country: you terminate your residence, make sure to not spend more than six months in each destination, and keep receipts and tickets that can prove the history of your whereabouts.
Tax authorities have a long-term memory
But imagine that, almost ten years after your overseas adventures, your home country’s tax service comes after you, claiming that, back then, you were still a resident – for tax purposes.
Sounds unbelievable? So did it to Glenn Gerald Harding, an Australian citizen who had left his country in 2009 to permanently settle in Bahrain. To his unpleasant surprise, the Australian Taxation Office (ATO) claimed he was an Australian tax resident for the year 2011.
According to the ATO, Mr. Harding did not have a ‘permanent place of abode’ outside Australia because his apartment in Bahrain was viewed as ‘temporary’ while he waited for his wife and children to join him in Bahrain.
And indeed, Mr. Harding moved apartments twice in the same building. But, as he argued, he was hoping to soon buy his own place in Bahrain, and wasn’t intending on returning to Australia in the foreseeable future.
A victory for expats and nomads
When appealing the decision to consider Mr. Harding an Australian tax resident, it was rejected by the Full Federal Court. The court decided that the relevant factor wasn’t the type of dwelling, but instead the place or country someone resides in should determine their tax residency. The judge stated that therefore, Mr Harding’s ‘permanent place of abode’ was Bahrain and therefore outside of Australia. In other words, Australia’s highest court clarified a law that had put many Australian expats at risk of unjust or even double taxation.
All too often, tax authorities look for tiny details that can cast doubt on someone’s emigration. Even when someone passes the ‘primary test’ of staying less than 183 days in the country, a mobile phone contract or a newspaper subscription can put their tax status in jeopardy. The Harding Case means a significant win for Australian expats, which benefits that can potentially extend to expats in other jurisdictions.
In other words, it has now become easier for Australian citizens to demonstrate that they have made a new life outside Australia. This is also interesting if you are not Australian, but find yourself in a similar fight with your tax authorities.
Tax laws are outdated
Generally speaking, tax laws are old and outdated. In the case of Australia, we’re talking about 80-year-old legislation. These laws were made in times when moving abroad meant burning all your ships and leaving the country without a trace.
This means that tax legislation no longer fits with modern-day living. The Australian government acknowledges this and is looking to modernize its residency rules. How long it will take for this to happen, in Australia as well as in your own country, we can only guess.
One thing you can be sure of, though: international taxation issues are best handled with the help of experienced professionals.
Consult us for international tax challenges
Tax issues can be a headache when they are not your day-to-day job. Laws can be interpreted in several ways and residency rules can be strict if any connection to your home country is discovered. That’s why you should always consult international tax experts before relocating. But even if you already have emigrated, we can help. Get in touch for creative advice that is tailored to your personal situation. Mail us at : firstname.lastname@example.org !