Moving overseas for work does not, by itself, end Australian tax residency. In a recent Federal Court case, it was found that an engineer who worked in Dubai for five years remained an Australian tax resident due to his particular circumstances.

The engineer’s circumstances

An engineer who lived and worked in Dubai for five years was found to still be an Australian tax resident during that period because, among other things, he kept his Perth family home, two Australian investment properties, several motor vehicles registered in Australia, his Australian bank accounts and his superannuation. His wife and children remained in Australia, and he visited 12 times during the five years. The case illustrates that a long overseas posting can still leave a person an Australian resident for tax purposes under the “domicile test”. This means the evidence doesn’t sufficiently demonstrate that the person established a permanent place of abode outside Australia.

How the residency rules work

Australian tax law sets out several tests to decide whether you’re a tax resident. You can be caught by any one of them, including:

Australian tax law sets out several tests to decide whether you’re a tax resident. You can be caught by any one of them, including:

• the ordinary concepts test, which looks at whether you “reside” here;
• the domicile test, which treats you as a resident if your domicile is in Australia unless your permanent place of abode is overseas;
• the 183-day test, which looks at how long you’re in Australia during an income year; and
• the Commonwealth superannuation test.

The Commonwealth superannuation test applies only to certain Commonwealth employees and family members.

You can fail the ordinary “resides” test and still be treated as an Australian tax resident under the domicile test. That’s exactly what happened in this case.

Why tax residency status matters

Australian tax residents are taxed on their worldwide income, while foreign residents are generally taxed only on Australian-sourced income. In the Dubai case, the ATO accepted the overseas wages were foreign-sourced, but because the taxpayer remained an Australian resident for tax purposes, that income was still brought into the Australian tax net. A foreign payroll, an overseas bank account or tax paid in another country doesn’t, by itself, shift your reporting obligations.

A fixed assignment isn’t a safe harbour

Leaving Australia with an intention to return after a set period generally won’t establish a permanent place of abode overseas. In this case, the engineer’s assignment was expected to run for about 24 months, then was extended. His Australian law employment contract, salary paid in Australian dollars, Australian bank account and continuing superannuation contributions all pointed back to Australia.

The ties that tipped the balance

The Court accepted that the taxpayer kept his Perth home so his daughters could complete their education, and that this alone did not prevent a finding that he was not residing in Australia under ordinary concepts. However, the broader picture told a different story under the domicile test, including a spouse spending most of her time in Australia, investment properties, vehicles, personal belongings and Australian salary and super arrangements. The Dubai apartment, which was leased by the employer on an annual basis, and evidence of the taxpayer’s established overseas social life wasn’t enough to demonstrate he had established a place of abode in Dubai that was more than temporary or transitory.

The takeaway for Australians working abroad

There is no automatic “two-year” rule for overseas workers. Tax residency depends on the facts, and records like assignment letters, leases, visas, travel and family arrangements can be critical. The Government announced it would simplify the rules back in the 2021–22 Federal Budget, but the existing tax residency tests still remain in force for now.

Before taking an overseas secondment or lodging as a foreign tax resident, contact us. We can review residency, treaty, foreign tax credit, withholding and CGT issues, and help document your position.