Am I Liable for Australian Tax in This Instance?

Hi,

Could someone with a Tax background advise me on the following situation?

  • Adam is working from Canada for an Australian company as a contractor.
  • Adam is an Australian PR and has a bank account in Australia.
  • Every week, he submits an invoice for his work in $AUD. The invoice is payable to his Canadian sole proprietorship entity.

The Australian company pays his invoice into his Australian bank account, and Adam transfers it into Canada as and when needed.
There are no tax withheld on this money by the Australian Company. Adam pays tax on the transferred money in Canada at the end of the financial year.

In the above scenario, is Adam liable for paying any tax in Australia (or doing any Australian paperwork) - considering he's being paid into his Australian bank account first?

Thanks!

Comments

  • I'd imagine so

  • Best to go see an accountant to understand dual tax agreements between Australia and Canada.

    https://www.canada.ca/en/department-finance/programs/tax-pol...

    https://treasury.gov.au/tax-treaties/income-tax-treaties

    considering it is being paid to an Aus bank account I would assume that you should pay tax in Australia first and foremost.

    Whether or not you get taxed in Canada for that matter is another matter, you may need to seek guidance on the DTA from a professional.

  • Yes, it is Australian source income and regardless what Adam's tax residency is, Adam will be liable to pay tax in Australia. See ATO website herefor more information

    • Is it Australian source though? Source - for the provision of services - I thought is down to a few factors, one of them being the place where the services are performed (Canada). But the other factors are the place where the contract was made (?) and where the money is payable (Australia). Could not guess how this would play out for Adams scenario.

      I would say work out if Adam is Australian tax resident https://www.ato.gov.au/individuals/international-tax-for-ind... I would guess that if Adam has gone to the effort to get Australian PR, his intention would be to return (hence likely to be resident)?

      If he is tax resident, the income is taxable in Australia. If not, need to look to 'source' which is something Adam would want to get professional advice on given the source factors are not clear in his situation.
      In any case, if he pays tax in Australia he'd likely get a foreign tax credit for this in his Canadian return.

  • Op, do you have to do an Australian tax return?

    • I am thinking I shouldn't have to, considering I am foremost a Canadian citizen.
      My Australian PR is rather recent, but I no longer have any connection to Australia - apart from billing the employer as an overseas contractor.

      So I guess we could rephrase the question as follows:

      Adam, as a Canadian, is working from Canada as a contractor for an Australian company.
      Adam happens to have a bank account in Australia.
      Is he still considered a Tax Resident? I guess that's the main question.

      Does it make any difference in terms of taxation if the employer sends the money directly to his bank account in Canada?

      • The ATO have their hands full trying to milk the profit shifting MNCs and policing super withdraws.

      • If you are not living in Australia, you can declare yourself not a resident for tax purposes. This doesn't necessarily mean you don't pay tax in Australia.

        However, what jurisdiction is the contract you signed? It will be stated somewhere.

        Are you still being paid superannuation?

        Are you paying income tax in Canada?

        It sounds like you are an Australian employee working overseas, but that may be an over-simplification.

  • There are quite a few accountants in Canada that have knowledge of both systems given the amount of Aussie expats. I’d suggest joining err I mean I suggest “Adam” joins… an Aussies in Canada facebook group and someone will probably have a recommendation. Also have a google around.

  • Yes you have to.

    If you are an Australian resident for tax purposes, you are assessable on WW income, and therefore you have to report everything.

    If you are a non-resident for tax purposes, you are assessable on Australian sourced income. Your income from the Aus company is Australian sourced and therefore you have to report it.

    There are double tax treaties however, and so depending on how the Canadian tax system treats you and the Aus sourced income, you may have to report it in both and get a tax credit from one of them, depending on the treaty rules with Canada.

    • If you are a non-resident for tax purposes, you are assessable on Australian sourced income. Your income from the Aus company is Australian sourced and therefore you have to report it.

      You are right that the source of Income is from an Australian company.
      But as a Canadian, does it really matter which country I am being paid from?

      e.g. if tomorrow I get paid by a company in Brazil for my contract work from Canada, I won't really have to worry about taxation in Brazil, right? Is it because of my AU PR status that I must lodge/pay tax in AU every year?

      • "Source" under tax law is not simply where the payer is located.

        • yes, the source of income can be very complex, and the scenario and my answer, are over simplified.

          OP, it's not simply your Aus PR; that is one, of many, factors used to determine if your "an Aus resident for tax purposes" which is different to the definition for migration purposes.

          let's say you never stepped foot in Australia. You're a Canadian resident for tax purposes. if the "source" of the income is Australian, then you have to report the income here as a non-resident.

  • The rules are complex - get advice. But this is a good start: https://www.ato.gov.au/Individuals/International-tax-for-ind...

  • I've been there, having lived and worked in Canada previously. It all comes down to whether Adam is an Australian resident for tax purposes, as classified by the ATO. This is different whether he is actually an Australian resident or not. Adam needs to seek tax accounting advice on this as it is complicated.

    For example, in my case, even though I went there for work purposes, the cost of the move from Australia to Canada was not considered tax-deductible as I was considered to have moved my residency from Australia to Canada. However, I was still considered to be an Australian resident for tax purposes, and therefore still needed to pay Australian taxes.

    • The income is still sourced from Australia.
      So regardless if Adam is an Aust resident for tax purposes or not he will still have to pay Aus tax - at what margin is the question.
      IF Adam is a foreign resident for tax purposes he does not have to pay the medicare levy nor is he entitled to the tax free threshold.

      Adam may then be able to get tax credits in Canada depending on any DTA.

  • The thing is that Adam in not being personally paid by the Australian company. The money is being paid into a foreign company (sole trader) - so the company would be taxed, right? How the company distributes the funds to Adam and what taxes Adam then needs to pay would be based on Canadian law.

  • Where is Adam tax resident? Is he in Canada more than half the last year?
    Does Adam contract under an ABN?
    If the paying company isn’t collecting income tax, then I guess not employed as an individual.
    If contracting under an ABN, then I suspect that income is treated as Australian income to an Australian entity, so will require you to lodge an AU tax return, and pay taxes in Australia.
    If employed as a PAYG individual, the paying company should withhold income taxes.
    If Canada resident employed as an individual do a CA tax return, pay the taxes etc. and should be fine as there are double taxation arrangements, but you will have to tax!

  • Got a few issues here:

    Central Management and Control of your Canadian company - More info can be found here

    If you're receiving income personally you may be still considered an Australian Tax Resident.

    All in all you should seek professional advice around residency as there is no silver bullet to your question - all a matter of fact and degree

  • This can be a very complex matter and there are many considerations.

    • Are you considered domiciled in Canada or Australia?
    • Are you a resident for tax purposes in Australia (probably since you are getting paid in AUD). Other considerations around where you have property and shares.
    • If you have shares - you have a few further complexities.

    I’d question why you chose to pay taxes in Canada first before speaking with an accountant. Really should be getting advice included as part of your contract with your Australian employer.

  • You're not an Australian resident for tax purposes if you are living and working overseas for the full year. You do not need to include this income on an Australian tax return because you are not earning the money in Australia, it's a Canadian business. You're just getting it paid into an Australian bank account in AUD. From what I can see, you are a non-resident of Australia for tax purposes. If you have no income in Australia from anywhere else (e.g. rental income), you are probably earning interest on that Australian bank account which should be taxed as a non-resident. If you notify your Australian bank you are a non-resident (change your address to overseas address), they will tax you at non-resident rates for the interest. You can then lodge a Return Not Necessary in place of a full Australian tax return (again, assuming no other Australian income besides the interest).

    • You're not an Australian resident for tax purposes if you are living and working overseas for the full year.

      That doesn't mean anything - the tests are broader than that.

      You do not need to include this income on an Australian tax return because you are not earning the money in Australia

      Also not true. If you're an Australian resident for tax purposes you declare all foreign and domestic income.

      This is why forums can be troublesome for this kind of thing…

      • Yes, in my case, I was away for 17 months. It was my intention to return to Australia that made me an Australian resident for tax purposes. And the fact that I was moving away for 17 months made me a temporary resident (not for tax purposes) of Canada in the eyes of the ATO.

  • Hi All, I was going to start a seperate one but mine is simlar to this post I suppose.
    I've worked all year long in Canada, well moved to BC JAN 2019, so this would be first full FY i guess overseas.
    I was intending to return by now but covid.
    I've earnt a full year income here and taxed etc.
    ATO confusing me around residency and stuff, do I still need to lodge and report what i earnt here?
    I dont have anything back in Aust like income/rentals etc and will be moving back to a friend flat who's my current AU postal address.
    ATO's live chat not helping much and not sure if i can sort from here accountant wise. :/
    I drafted a etax thing today since 1st july but not sure if I need to or if there's any reason why or why not.
    I'm dual passport holder and living with dad here. So many of the "tests" dont really tell me or confirm.

    • What was your intention?
      There are different ways of slicing the answer to this question, but what you have to realise is that regardless of what you say it was, the ATO will look at:
      - did you buy a return flight?
      - what assets you have in Australia (House/shares)
      - do you have a car in Australia
      - is your intention more or less than 2 years
      - is your contract to work in Canada on Canada paperwork?

      • Intention was to come back, but haven't been able to book anything etc. so fair point.
        - nope
        - nothing, just super i guess.. dont have anything really :/
        - sold before i left for some cash to setup over there
        - i'm aiming to be back before year end if covid allows, really thinking even sooner but the flights and quarantine is hard to come by and 2 weeks iso will be annoying.
        - no contract as such, i just came here and since i have dual citizenship i guess, just applied for work like normal.

        Been trying to seek out what option i have, but even still i have sub 45k income and no real assets etc.

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