LWOP arrangements and Australian tax

[MajorLemond]

Hey guys,

Just curious about what the deal is with pilots who go on LWOP to the middle east / Asia etc for so called tax free money.

According to the ato website they will tax you on all your foreign income and slog you with a tax bill on your return to Australia? I know there are a few exemptions but nothing I could see would cover work a pilot does.

I've been considering the option but I'm not sure about this as it seems to have serious financial implications.

[gupta]

A good start would be a visit to an accountant to discuss residency for tax purposes.
I'm not about to hand out free professional advice.

[dfmac]

I only have fairly limited experience with this, but my understanding is that in order to avoid the ATO taxing your global income (that is, money you earn inside and outside Aus), you need to break your tax residency in Aus.

Being taxed on your global income means that any tax savings you have overseas are negated by then paying to the ATO the difference between the tax you've already paid overseas, and what you would have paid if you earned the money in Aus.

Breaking tax residency in Aus requires you to expect to and then live outside Aus for more than 2 years, which I believe you need to evidence through employment contracts etc.

Again, this is based on fairly limited experience.

[*Lancer*]

Most accountants in Australia aren't the best with this, but the answers are all online. Look up tax residency and tax treaties (arrangements vary country to country).

Trust me, I'm a pilot :rolleyes:

[tail wheel]

"....pilots who go on LWOP to the middle east / Asia etc ...." remain Australian tax payers by virtue of being on LWOP from their Australian employment, usually for a defined period. Having a home (and probably family) in Australia further confirms their status.

But this is a Pilot's Forum, not a Tax Accountants Forum. Get your own accurate tax advice from a Tax professional, relevant to your intended circumstances.

[AbsoluteFokker]

If you have a wife/kids, make sure you take them with you.

Saw a report a while back about the ATO stating that an overseas-based pilot is still a resident for tax purposes if a home is kept in Australia with immediate family (wife/kids) living in that home.

[Ixixly]

https://www.ato.gov.au/individuals/international-tax-for-individuals/going-overseas/lodging-your-tax-return/how-residency-affects-your-tax-return/

Take with a grain of salt of course, but as others have said it comes down to whether you're a "Resident for taxation purposes" which essentially boils down to your ties back to Australia, you need to be able to show them that you've left Australia and have no ties back here, commercial, family etc...

If you become a Foreign Resident in another country that's at least half the battle, the other half then comes down to whether you have income of any sort coming in from Australia (Rentals, Investments etc...), do you still have a permanent abode here? Does your Family (Wive/s, Kid/s etc...) still live here... all those sorts of things.

But as others have said, we're (Mostly) Pilots, not accountants, go see an accountant, get it in writing if you can and preferably after that also get something in writing from the ATO if at all possible to cover your bases.

[j3pipercub]

I reckon you'll be fine. Just tell the tax man when they come a knockin that you heard that it's fine, according to a bunch of randoms on an internet forum. As Abraham Lincoln once said "Everything you read on the internet is to believed as Gospel".

[404 Titan]

pilotchute

I'm actually an accountant by profession and been a non-resident of Australia for tax purposes for 17 years. I'm going to take you to task on a number of points.

If you send money back to Australia for any reason the ATO regard you as a resident.

Rubbish. You can even have a bank account in Australia and still be treated as a non-resident for tax purposes. Being a non-resident doesn't mean you won't pay Australian tax though.

If you own property in Aus and family members live in it or you rent it out you are a resident according to the ATO.

Certainly if you have a primary place of abode in Australia and your family lives in it you will most likely be deemed an Australian resident for tax purposes and your foreign income will be taxed. If your family don't reside in Australia and your property is rented out, barring other defined factors, you will be classed as a non-resident for tax purposes and your foreign income will not be taxed. Income on your investment property will be taxed at the non-resident tax rate which is 32.5% from dollar 1, i.e. no tax free threshold. I note then you contradict yourself by saying:

If you rent it out you can claim non-resident but you will pay tax on the rent.

To be clear you are either a resident for tax purposes or you aren't. You can't be both.

No negative gearing if you live overseas.

Incorrect. You can negative gear though as a non-resident doesn't make much sense as your foreign income is exempt from Australian income tax and this is what you're trying to reduce by negative gearing. Righting off the costs associated in owning an investment property can be written off against the income generated by the property regardless of your residency status.

If your kids go to school in Aus but are boarding, still a resident.

Again incorrect.

If you or your dependants get any benefits from the Aus Govt (access to schools, medical care, welfare, access to the legal system etc) you are a resident.

As a non-resident you can't claim any government welfare on these things anyway. If you or your family are you are breaking the law. You can send your kids to school in Australia, see a doctor and/solicitor and be classed as a non-resident for tax purposes.

I removed myself from the electoral roll and closed all my bank accounts except the credit card (was still paying it off) and got told the maintenance of a credit card in Aus made me a resident because I was making "remittances".

Yep you must remove yourself off the electoral roll because as a non-resident you aren't allowed to vote but seriously who's given you this advice about bank accounts and remittances? If you've got an accountant that's advised you this I would strongly recommend you change accountants. I've made it my business over the last 17 years to be 110% up to speed on Australian tax law as it pertains to Australian expatriates. Your residency status is determined based on a matrix of items. Having an Australian bank account and sending money down to Australia into this bank account on its own wouldn't make you a resident for tax purposes.

You also need to lodge tax returns saying your overseas permanently. If you move overseas I don't see why you would do this but that's what the ATO suggest I do if possible.

In your last tax return you must advise the ATO that this will be your last tax return as you are moving overseas indefinitely. If you have no Australian income you don't need to lodge any further Australian tax returns. Obviously if you have an Australian investment property a tax return will be required.

Regarding the original posters question, LWOP can be a problem regarding non-residency because it usually defines a date you'll be returning to Australia and working. To claim non-residency you need to show that you won't or don't know when you'll be returning to Australia to work and live.

[pilotchute]

Well people there is your answer.

Thank you Titan. Did you respond to smack me down or answer the OP? The information I posted is a mix of my own experience, experience of other expats and reading of various Australian Govt websites.

I found the ATO were always very vague and would tell me they didn't know "my circumstances". My accountant would always say "just to be safe do this" which infuriated me.

One thing I do know. If the ATO have decided you owe them, it will be an uphill battle to prove that you don't.

[404 Titan]

pilotchute

My intention wasn't to smack you down. It was to correct untruths. Regarding the ATO, did you get a ruling or just speak to someone? Speaking to someone is generally pointless as they aren't accountants but generally clarks, hence the reason for the vagueness. My advise to all expatriate Australians is find an Australian accountant who specialises in non-resident tax law. There are plenty of rulings out there regarding most circumstances but if your circumstances differ and you're not sure, get you accountant to request a ruling. There are thousands of expatriate Australians who own Australian investment property, have bank accounts, send money to Australia and even have their children in boarding schools in Australia and have been deemed by the ATO as non-residents of Australia for tax purposes.

[donpizmeov]

You done good Titan. Way too many wives tales about working overseas.

Pay money and get proper advise from an expert in the matter. The advise I received is exactly what Titan has said.