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‘Think very carefully’: ATO warning amid Great Resignation

Stack of Australian currency, pedestrians on pedestrian crossing - aerial view.
Moving overseas to work? This is what you need to know. (Sources: Getty)

The COVID-19 pandemic has proved employees can work from home effectively, and it’s also triggered a mass exodus of disenchanted workers.

Microsoft research found more than 40 per cent of workers around the world were considering a change. And as international borders begin to reopen, some are also feeling the allure of international work.

However, while it’s tempting to work from a tropical island or idyllic winter village, tax partner at HLB Mann Judd Sydney Peter Bembrick has called for jetsetters to do their homework first - or risk an unwanted run-in with the Australian Tax Office.

“For the first time, companies may be more willing to allow employees to work from wherever they want, even in other countries,” Bembrick said.

“However, just because the thinking and perceptions of businesses have changed, it doesn’t mean the thinking of the ATO has changed. There are still a number of considerations to take into account, both for businesses and for individuals.”

WATCH: Working from home costs you didn't know you could claim.

For example, when someone moves overseas, their tax residency could shift. This usually happens as soon as they make the move, and it’s worth considering the advantages and disadvantages of that.

“Usually, it is more tax effective to become a tax resident of the country they are moving to,” Bembrick said.

“[This is] mainly because their salary will be taxed only where they are working, while if they remain as an Australian tax resident, they must report their salary to the ATO and may be up for extra tax as a result.”

But as more people experiment with working abroad for Australian companies, workers need to think carefully about what changing tax residency means - and the acts that trigger that.

HLB Mann Judd tax partner Peter Bembrick smiles at camera while wearing suit in front of white background.
HLB Mann Judd tax partner Peter Bembrick has called for caution. (Source: Supplied)

“Even if they decide they don’t wish to be a tax resident of their new home, changing tax residency is not a choice, and will usually depend on a range of factors, including how long they plan to live and work in the other country,” Bembrick said.

Generally, anyone who moves abroad for longer than three years without a fixed return date will see their tax residency shift, but there are other factors to consider.

“The ATO can determine whether a person’s tax residency status has changed based on their particular circumstances and arrangements, noting the tax legislation in the other country also has a part to play,” Bembrick said.

“Where the individual moves to a country with which Australia has a Double Tax Agreement, there will be ‘tie-breaker’ residency rules that can be used when both countries claim the person as a resident.”

Capital gains tax considerations

Workers who move overseas but who still have a family home in Australia will also face tougher capital gains tax (CGT) rules.

When a home is considered a main residence, it’s exempt from CGT. However, if it’s not used as the main residence for six years, the sale of the house will attract CGT.

When a home is considered a main residence, it’s usually exempt from CGT if the individual is a tax resident at the time of the sale. However, if they are a non-resident when they sell the house, CGT will apply to the whole gain, with no exemption.

The only way around this is to move back to Australia within six years and live in the property before selling it.

“Such considerations need to be carefully thought through to ensure people don’t end up in a worse financial position than they started in or, even worse, in hot water with the tax office,” Bembrick said.

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