Is it still taxable income in Oz when trading online from Bali?

mdkb · 9 March 2015

Hi

I will be asking the ATO anyway, but given previous experience they probably wont know and will default to 'you must pay tax' answers.

I am an Australian Citizen and use CMCmarkets.com.au and IG.com for my online trading while living in Australia. I am about to move to Bali for at least 6 months and will continue trading while there before returning to Oz, assuming I do return.

Do I have to declare this online trading to ATO in Australia as taxable income while I am trading outside the country via a portal that may well be australian based. I asked CMC and they said they dont know and to ask my local tax office.

I wanted to be armed with some answers before I call them and have 'that phone call'

any thoughts or professional awareness on this grey area.

thanks
Mark

pinkboy · 9 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

Calling the ATO is silly for starters. They will default to tell you to pay tax.

Call your accountant to seek the appropriate answers, but yes, you will be liable for income tax if you're trading, even if you're out of the country. You will be earning income in Australia will you not? Where you are physically in the world does not matter.

Calling the ATO to tell them what you are doing could also further complicate things. They may determine on the spot that you are to be assessed as a foreigner if they know you are leaving the country semi permanently or permanently and tax you at a new high rate. You don't want that is you do decide you are coming back to Australia.

pinkboy

So_Cynical · 9 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

mdkb said:
any thoughts or professional awareness on this grey area.

Its not a grey area at all, Australian accounts opened and operated by Australians pay tax in Australia.

mdkb · 9 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

thanks guys. Yea it is just a holiday and may only be a few weeks. and it is no longer a grey area. crystal clear in fact. thanks for your help. any further comments by others would still be appreciated so I am aware of all aspects of this.

christianrenel · 9 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

mdkb said:
thanks guys. Yea it is just a holiday and may only be a few weeks. and it is no longer a grey area. crystal clear in fact. thanks for your help. any further comments by others would still be appreciated so I am aware of all aspects of this.

I agree, the income is earnt in Australian, and therefore will be taxed in Australia,

kind regards

christianrenel

hiddencow · 9 March 2015

Also you will still be an Australian resident for tax purposes so the income in taxable on that basis as well.

McLovin · 10 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

So_Cynical said:
Its not a grey area at all, Australian accounts opened and operated by Australians pay tax in Australia.

That's not true at all. Your citizenship is only part of the answer and a pretty small part at that. It's whether you're considered a tax resident in Australia, and generally Australia citizens are considered that unless they can show they have changed their domicile. So that comes down to things like whether the OP maintains a home in Australia, family connections, intention to return, paying income tax in Indonesia etc. It's very much a grey area and the OP needs to speak to an accountant.

From the horse's mouth...

Are you an Australian resident for tax purposes?

Generally, we consider you to be an Australian resident for tax purposes if you:

- have always lived in Australia or have come to Australia to live

- have been in Australia for more than half of the income year (unless your usual home is overseas and you don't intend to live in Australia - for example, you are a working holidaymaker), or

- are an overseas student enrolled in a course of study of more than six months duration.

Most people who are born in Australia and are currently living in Australia are residents for tax purposes. You may still be a resident even though you are not physically in Australia - for example, if you go overseas on an extended holiday.

If you have moved to Australia from overseas and intend to stay for the foreseeable future and set up connections with Australia, you may also be a resident of Australia for tax purposes.

FWIW, my accountant has several clients who were poorly advised, or not advised at all, and moved overseas on extended contracts to tax free juridictions (Dubai esp) and stopped paying tax in Australia only to have the ATO advise them they were still resident for tax purporses.

The other thing to consider is if you become non-resident for tax purposes you may have up to 30% withholding tax levied against your earnings in Australia. It may end up costing you more in tax than just remaining resident.

My uninformed opinion is that you will still be resident for tax, based on this...

I am about to move to Bali for at least 6 months and will continue trading while there before returning to Oz, assuming I do return.

Speak to an accountant, don't trust the interwebs!

McLovin · 10 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

mdkb said:
I am about to move to Bali for at least 6 months and will continue trading while there before returning to Oz, assuming I do return.

mdkb said:
Yea it is just a holiday and may only be a few weeks.

Err...

So_Cynical · 10 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

McLovin said:
That's not true at all. Your citizenship is only part of the answer and a pretty small part at that. It's whether you're considered a tax resident in Australia, and generally Australia citizens are considered that unless they can show they have changed their domicile.

Yep, im well aware and moving OS semi permanently in a couple of years and going to keep my Aussie tax residency.

Its not a grey area at all for the OP because.

He is an Australian citizen with Australian Tax residency trading Australian equities thru an Australian account in Australian dollars.

Hes not going to pay tax in Bolivia is he.

McLovin · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

So_Cynical said:
Yep, im well aware and moving OS semi permanently in a couple of years and going to keep my Aussie tax residency.

Its not a grey area at all for the OP because.

He is an Australian citizen with Australian Tax residency trading Australian equities thru an Australian account in Australian dollars.

Hes not going to pay tax in Bolivia is he.

If he met the requirements of the 183 day rule (which, as I said, he probably wouldn't) he could claim to be non-resident. His citizenship is almost irrelevant. As are all the other points you made.

In the OP he said he was moving to Bali for at least six months, and maybe permanently. He then changed it to going on holiday. In the former there is an argument to not be resident for tax, in the latter there most definitely isn't.

Sharkman · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

So_Cynical said:
Yep, im well aware and moving OS semi permanently in a couple of years and going to keep my Aussie tax residency.

Its not a grey area at all for the OP because.

He is an Australian citizen with Australian Tax residency trading Australian equities thru an Australian account in Australian dollars.

Hes not going to pay tax in Bolivia is he.

for the OP it probably isn't a grey area, only 6 months overseas is nowhere near long enough to be able to shed one's tax residency, but i would say the tax residency rules themselves are a grey area.

i was transferred to our company's singapore office a few years ago, along with many of my sydney colleagues. as part of the relocation offer, the company paid for each of us to have individual consultations with tax advisers from one of the big four before we made our decision.

all of us asked about tax residency because naturally all of us were keen to become non-tax residents for our stay, so we only had to pay the much lower singapore tax on our salaries, as opposed to paying the singapore tax, then having to pay the substantial difference between the two tax rates to the ATO upon our return. and all of us were told that there aren't any black and white rules, but to give ourselves the best chance of being assessed as a non-tax resident, we should do things like sign a 2 year rental lease (and obviously commit to living overseas for a minimum of 2 years), take ourselves off electoral rolls, close down as many aust bank accounts as possible, and avoid too many discretionary trips back to aust.

if one of the big four, with all of their resources, are still unable to clearly distinguish what does and doesn't constitute tax residency, i think that qualifies it as a grey area!

McLovin · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

Sharkman said:
for the OP it probably isn't a grey area, only 6 months overseas is nowhere near long enough to be able to shed one's tax residency, but i would say the tax residency rules themselves are a grey area.

i was transferred to our company's singapore office a few years ago, along with many of my sydney colleagues. as part of the relocation offer, the company paid for each of us to have individual consultations with tax advisers from one of the big four before we made our decision.

all of us asked about tax residency because naturally all of us were keen to become non-tax residents for our stay, so we only had to pay the much lower singapore tax on our salaries, as opposed to paying the singapore tax, then having to pay the substantial difference between the two tax rates to the ATO upon our return. and all of us were told that there aren't any black and white rules, but to give ourselves the best chance of being assessed as a non-tax resident, we should do things like sign a 2 year rental lease (and obviously commit to living overseas for a minimum of 2 years), take ourselves off electoral rolls, close down as many aust bank accounts as possible, and avoid too many discretionary trips back to aust.

if one of the big four, with all of their resources, are still unable to clearly distinguish what does and doesn't constitute tax residency, i think that qualifies it as a grey area!

Yeah that's right. I do wonder how long the ATO will allow some retirees to live overseas and still claim franking credits etc. I've seen very little information on that sort of scenario and the rules as they are now are pretty slanted toward you remaining resident, because that has traditionally been the best way to capture revenue, but I wonder what the ATO thinks of retirees living overseas tax free on super.

Ves · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

McLovin said:
Yeah that's right. I do wonder how long the ATO will allow some retirees to live overseas and still claim franking credits etc. I've seen very little information on that sort of scenario and the rules as they are now are pretty slanted toward you remaining resident, because that has traditionally been the best way to capture revenue, but I wonder what the ATO thinks of retirees living overseas tax free on super.

As far as I know the ATO doesn't distinguish between residency & non-residency when it comes to pension payments received from Australian superannuation funds by individuals over 60 (unless of course it is untaxed component).

However, two other things to think about.

Firstly if you're not an Australian tax resident, you're probably at risk of becoming a tax resident of another country and they may tax the super pensions / other income.

Secondly, if your super is housed in an SMSF, the SMSF and its trustees need to always pass the residency tests to continue to be considered a complying fund (these are different from the tax residency tests!). I'd be very careful if you're an SMSF trustee and you plan to go sipping cocktails on a beach in the Bahamas for a few years.

McLovin · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

Ves said:
As far as I know the ATO doesn't distinguish between residency & non-residency when it comes to pension payments received from Australian superannuation funds by individuals over 60 (unless of course it is untaxed component).

Even if a non resident is receiving a tax refund of franking credits?

Ves said:
Secondly, if your super is housed in an SMSF, the SMSF and its trustees need to always pass the residency tests to continue to be considered a complying fund (these are different from the tax residency tests!). I'd be very careful if you're an SMSF trustee and you plan to go sipping cocktails on a beach in the Bahamas for a few years.

My understanding is that the majority of trustees (or majority of shareholders in the case of a trustee company) and the majority of assets in the SMSF need to be tax resident.

Ves · 11 March 2015

Re: Is it still taxable income in Oz when trading online from Bali

McLovin said:
Even if a non resident is receiving a tax refund of franking credits?

Sorry I think I misunderstood your initial question, or at least didn't answer part of it.

Non-residents aren't eligible to receive a refund for franking credits.

https://www.ato.gov.au/individuals/...n-shares/you-and-your-shares-2013-14/?page=14

With unfranked dividends & bank interest you're supposed to let the company / bank know and they will deduct withholding tax credits.

I note that on individual tax returns there's a spot that asks you if you're a tax resident. There are definitely different tax rates for non-residents if you say no.

My understanding is that the majority of trustees (or majority of shareholders in the case of a trustee company) and the majority of assets in the SMSF need to be tax resident.

Pretty much, but there's also a 2 year safe harbour provision (within the management and control tests). After that there are other options, like giving enduring powers of attorney to an Australian citizen (who become trustees).

In other words there are other considerations, won't go into them as it can get messy and I personally haven't seen it much at all.

sydbod · 11 March 2015

There is much information about this topic on the Australian tax sites.
It is never just one clear cut rule, but a number of rules in combination that determines ones Tax resident status.

EG: one can stay overseas for 5 continuous years, and if in that period one does not establish an overseas home (if one keeps moving around without a significant fixed base for any length of time) then for tax purposes one is still considered an Australian Tax Resident that is just on an extended overseas holiday.

It is usually a question of where one intends to establish a new home base and consider it a permanent change that is the determining factor. Where many people get caught is that they go overseas, and establish a new home base there, but do not get rid of their trappings in Australia ... ie: do not close their bank accounts in Australia, or keep their car registered and owned in their own name in Australia, etc. Anything that can be construed that the person is not making a COMPLETE cut from Australia and relocating their HOME to another country will be interpreted by the Tax Department as the person not seriously intending to live overseas as their new HOME.

Another thing you should become aware about is the implications of capital gains.
If you have any assets in Australia that are subject to capital gains, then the instant you stop being an Australian Tax resident, is the instant that a Tax event gets triggered for that asset (deemed that the asset gets sold from an Australian resident and repurchased by a non Australian resident). Also any CGT exempt items like your family home in Australia lose their CGT exemption ... etc. There are certain loop holes one has to jump through to avoid getting a huge tax bill by these if one is not careful.

Please .... for your own financial safety, get professional advice about what you may want to do.

hiddencow · 11 March 2015

In terms of query about retaining Aus residence status for franking credits, I think this would be pretty easy. It's very much about keeping ppl as residences than the other way around. Just maintaining investments and bank accounts and credit cards suggests you still are maintaining ties with Australia.

sydbod · 12 March 2015

If my tax interpretation is correct then one has 2 conflicting situations. (please do your own check to confirm if this is still current)

1) Franking credits are available to Australian tax residents. No Franking credits available to NON Australian tax residents.

2) Capital Gains Tax (on shares) payable by Australian tax residents, No Capital Gains Tax (on shares) payable by NON Australian tax residents.

Depending upon whether you make more from franking credits, or from Capital Gains may determine what path one should go for.

McLovin · 12 March 2015

Ves said:
Sorry I think I misunderstood your initial question, or at least didn't answer part of it.

Non-residents aren't eligible to receive a refund for franking credits.

https://www.ato.gov.au/individuals/...n-shares/you-and-your-shares-2013-14/?page=14

No problems.

The franking credits are a pretty big bonus for someone to be receiving, especially if they are living somewhere that has low/no tax on foreign income. The whole purpose of making your tax residency sticky was that it protected government revenue, but in this scenario the government is losing revenue by its own rules -- and we all know what the ATO does when that happens!

sydbod said:
2) Capital Gains Tax (on shares) payable by Australian tax residents, No Capital Gains Tax (on shares) payable by NON Australian tax residents.

Yes, that's right. However, if you go from being resident to non-resident the tax office treats that change of residency as a CGT event and you will pay CGT on any capital gains you have earnt while resident. It's designed to stop people amassing large unrealised gains, changing their residency and, in the process, wiping away the tax liability.

Sharkman · 13 March 2015

McLovin said:
Yes, that's right. However, if you go from being resident to non-resident the tax office treats that change of residency as a CGT event and you will pay CGT on any capital gains you have earnt while resident. It's designed to stop people amassing large unrealised gains, changing their residency and, in the process, wiping away the tax liability.

not quite true:

https://www.ato.gov.au/Individuals/.../?page=3#Ceasing_to_be_an_Australian_resident

you can elect to defer the CGT event when you give up your tax residency (i did this when i moved to singapore), in which case if you sell the asset whilst you're a non tax resident, you pay the (higher) non resident rate on any capital gains. if you don't sell it during the time you're a non tax resident, then when you return and become a resident again, it's treated as if you'd never changed to being a non tax resident.

however this is an all or none decision, you can't cherry pick which assets to defer CGT for and which ones to trigger a CGT event upon becoming a non tax resident.

Is it still taxable income in Oz when trading online from Bali?

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