Residency & source of income - Impact of COVID-19
The Australian Taxation Office (‘ATO’) has recently updated its commentary on the impact of COVID-19 (and, in particular, the travel restrictions in place and safety concerns in other countries) on residency and the source of income for individuals who have been working remotely in Australia during the pandemic.
The updated guidance seeks to differentiate between an individual who is unable to depart Australia, and an individual who is able to leave Australia but who chooses to remain here and work remotely for various reasons. The ATO’s view suggests an individual who chooses to remain in Australia is more likely to be considered a tax resident of Australia and, further, their employment income will be taken to have an Australian source.
Generally you are considered an Australian resident for tax purposes if you:
- Reside in Australia according to ordinary concepts;
- If your domicile is in Australia, unless the Commissioner is satisfied your permanent place of abode is outside of Australia;
- You are physically present Australia, continuously or intermittently for 183 days or more or
- You are a member of a Commonwealth superannuation fund.
Based on the updates by the ATO on 10 August 2021, it is the ATO’s view that the longer an individual chooses to remain in Australia, the greater the likelihood the individual will be considered an Australian tax resident.
In response to ongoing travel restrictions and health and safety concerns around the world as a result of COVID-19, the ATO’s guidance states the following in relation to a person’s choice about leaving Australia:
Choosing to stay in Australia when you have been able to leave is a factor that will point towards you being a resident.
This includes if you have been able to leave Australia but did not do so, because of conditions or restrictions that apply, or may apply. For example, quarantine requirements or restrictions on re-entering Australia.
Factors to consider in determining whether you have been able to leave Australia include:
- government restrictions preventing you from leaving Australia and entering your usual country of residency.
- a lack of commercial flights available to enable you to return to your country of residency.
Further, the ATO has acknowledged that it is sometimes difficult to determine when an individual’s tax residency status has changed. In this regard, it is necessary to consider all the facts and circumstances of the individual including:
- intention and purpose of coming to Australia;
- living arrangements in Australia; and
- family and employment ties in Australia.
From previous ATO correspondence, COVID-19 was considered to present a special set of circumstances and the ATO have determined that employment income will not be considered to have an Australian source if the remote working arrangement lasts for a period of three months or less.
However, difficulty arises where the working arrangement extends beyond the three month period, and as mentioned above, all facts and circumstances of the individual needs to be taken into consideration to determine if the employment is connected to Australia. The ATO has now added that employment income is likely to have an Australian source where an employee chooses to remain in Australia and has agreed with their employer that Australia can be their place of work.
Individual and employer considerations
Factors preventing an individual from departing Australia which are beyond the control of the individual, such as travel restrictions or flight availability, will provide a stronger argument for non-resident status. However, an individual will not be able to rely on a non-resident status in the event they decide to remain in Australia. Those individuals affected by COVID-19 will need to have consideration for the updated ATO guidance when completing their tax return for the year ended 30 June 2021.
In addition, employers should also be aware of the update and the impact to their employment tax obligations, such as PAYG withholding and reporting, amongst others.
Eng Hua Ng