resident or non resident for tax purposes?

Ok this is my situation, which I will try and simplify and hope someone can give me some advice.

I was living and working in the UK for 16 months starting April 07 (worked from June 07 to April 08). I am now back living on Australia and plan to stay.

Whilst away I rented out 3 Australian properties – one is fully paid off which I received about 20k in income and had about 3K in deductions. (Taxable income say $17k)

The second property I received about 15k income and had about 17k Deductions. Negative return of $2k

The third property is in a trust, which I own all 360000 $1 units which I borrowed for. From this property I earned 15K in income and deductions including interest on the units in the trust were 33k effectively this was a negative return of 18K.

In the UK I earned the equivalent of A$75000 and paid the equivilant of A$13,600 in tax. If I had earned this amount in Australia I would have paid $18,000 in tax hence there is a shortfall of 4K (well if National Insurance payments were taken into account from the UK there would not be a shortfall). So I will have pay some tax on this income if I say I am a resident.

I also received whilst I was overseas a bonus payment that was payable to me going back to 2006 when I was living in Aust – no tax was withheld from this payment (about 6k).

Whilst overseas I sold some shares, which I have held for years and have a capital gain of 3K.

Whilst overseas I earned about 12K (input credit of about 5K) dividends from my shares held in Oz and also paid $5500 interest on my margin loan. All of my dividend statements say I am a “non resident” but it does not appear that I was taxed at a lower rate – I have read links that said I should have been taxed at 15% company rate not 30%. Is that correct? I had about 400k of shares when I left but now that is down to about $140k (mostly through drop in values and a few other sales where I broke even).

It looks to me that I can choose to be a resident or non-resident for tax purposes the question is which way should I go? Any help would be very much appreciated.

 

You cannot choose to be resident or non resident, it is a question of fact. Given you circumstances, it would be best to seek a professional opinion. The ATO do have a questionaire on their website that can give you an opinion based on your responses to their questions, it might not give you cast iron guarantee, but if you print out your responses and the outcome you should be able to rely on it to avoid penalties, if you get it wrong:

ATO questionaire

Fully franked dividends are not taxable in the hands of a non-resident, this might be why you think they didn't tax you at a lower rate - it will still show the franking credit - which is of no use to you. Unfranked dividends would have the witholding tax, if you had any. Also your margin loan interest is not deductible if you are non resident, you should add it to the cost base of the shares you bought instead.

Hope this helps.

 

In the absence of any other info, and subject to any specific Double Tax Agreement, it sounds like you are a resident.

You need to get specific advice on how to prepare/amend tax returns for both countries.

Also, whether there are any exemptions from tax here, such as if you were posted there as an employee of an Australian organisation, or were teaching etc.

Cheers,

Rob

 

Hi Skerro

Assuming that you did not intend to be away for more than 2 years you will almost certainly be considered a resident for tax purposes. If you did intend to be away for more than 2 years but came back early then you are likely to be a non-resident. Read the rules - the ATO has lots of info on its website, rulings, IDs etc.

If a resident your UK income will be considered tax exempt as you were working overseas for more than 90 days (this rule is about to be abolished - Budget 2009) and as you paid tax on it in UK you will have no further tax obligation.

You should therefore complete income tax returns in Australia and you should be a resident. Your dividend statements probably say "non-resident" if you had an overseas address. The share registries wouldn't know if you were a resident or not for tax purposes.

If you are a non-resident you would need to have reported all your Australian income in your UK tax returns!! (you'd get a credit for tax paid here).

Hope this helps.