This article delves into the topic of whether Australian digital nomads should remit their taxes to the government and also explores some lawful means of mitigating tax obligations.
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This article is not formal tax advice is for informational purposes only, and the facts might have changed since we wrote it.
To obtain formal advice, individuals may reach out to a tax expert or, alternatively, make direct inquiries to government agencies in certain instances.
Should you keep paying your digital nomad taxes to the Australian government? Is this the case even if you already paid taxes to the government of the country you are currently residing in ?
In the aftermath of the coronavirus, a new type of workforce has emerged and it thrives without the need for offices or confined workspaces. This group, known as digital nomads, makes the most of remote working advantages.
Travelers who use the internet to earn a living while exploring tropical destinations and exotic locations are known to roam. This way of life has been gaining popularity for some time now and has been promoted by social media influencers and internet content creators. However, it wasn’t until the pandemic prompted worldwide lockdown that countries began to formally acknowledge and even embrace this lifestyle.
In an effort to foster more stable tourist industries, countries like Greece, Portugal, Brazil, Bali, and Malta have initiated the provision of residency visas for remote workers, also known as ‘digital nomad visas.’ These permits allow remote workers to reside and work in these nations, as long as they earn a certain minimum income from overseas.
Many tax systems are ill-suited to deal with emerging workers such as digital nomads. Since they are typically physically distant from their home country, the taxes they pay no longer directly contribute to the local infrastructure there.
In addition, the Pay As You Earn tax system utilized by numerous countries worldwide does not align with the contractual and gig economy jobs that form a substantial portion of a nomad’s work. As a result, individuals interested in embracing a nomadic lifestyle often encounter significant confusion.
As an Australian nomad, should I still pay digital nomad taxes to the Australian government?
To put it succinctly, determining your tax residency is crucial. It is advisable to address your tax and superannuation responsibilities before departing from Australia to avoid any complications. In case you have not, the majority of your requirements can be fulfilled using the Australian Taxation Office (ATO)’s online services.
Included in these services are four residency tests that you can employ to establish your status as an Australian for tax reasons. Moreover, the ATO website offers an internet-based application that can assist you in evaluating your current situation.
Essentially, it is important for a nomad to determine whether they still qualify as an Australian resident for taxation purposes. This matter can only result in two possible scenarios, as explained further.
For digital nomads that are still considered Australian tax residents
Even if you are a digital nomad, you must file an Australian tax return if you are classified as a resident for tax purposes. This includes reporting all income earned while working abroad, as well as any excluded income, even if taxes were previously paid in the country where it was earned. Even if you have already paid taxes in your current residence’s country, you still have to do this. If you are eligible, you might be able to use a foreign income tax offset (FITO) to avoid double taxation based on the country you are in.
The extent of this deduction is contingent on the extensive tax treaties Australia has with more than 40 nations globally, such as Canada, China, Japan, Malta, Spain, and the United States. Individuals who work remotely may consider examining the complete inventory to discover additional details on how to manage the income of Australian residents generated abroad and foreign residents’ income obtained in Australia.
In essence, it is necessary to report all the income you receive while working abroad, including salary, wages, commissions, bonuses, allowances, and earnings from employee share schemes. However, certain exemptions exist, mostly for individuals involved in services for foreign countries, like managing disaster relief funds or participating in religious and charitable organizations.
For Australian digital nomads considered foreign residents for tax purposes
Once you are no longer considered an Australian resident for tax purposes and are classified as a foreign resident, you are not required to disclose your global income to the Australian authorities unless you possess taxable Australian assets, in which case you remain liable for capital gains tax.
Apart from this exception, this implies that the taxes of a digital nomad must be paid only to the government of the country where they are currently residing.
It is necessary to include your income earned from Australian businesses while abroad, rental income from Australian properties, and Australian pensions and annuities in your tax return.
Should the Australian company or financial institution that provides payment to you have already deducted the appropriate taxes, there is no requirement for you to report any interest, dividends, or royalties that you earn as a foreign resident and originate from Australia.
If you are a newbie nomad and you switch to foreign residency status within an income year, you must still submit your tax return for the duration that you were considered an Australian resident. According to the ATO, it is recommended that you respond with a positive answer to the question “Are you an Australian resident?” in your tax return.
The taxation office states that being a resident allows you to be taxed at resident rates during the income year and receive a proportional tax-free threshold based on the duration of your Australian residency.
According to the ATO website, once you are no longer an Australian resident, there is no requirement to declare foreign income on your tax return. Additionally, any interest, dividends, and royalties that were received from Australian sources after your Australian residency status ended will be subject to withholding tax provisions as a final tax and should not be reported on your tax return.
If you are a non-domestic inhabitant, then you are not obligated to hand over the Medicare levy. The days during the fiscal year when you are not residing in Australia can be deemed as exempt days.
How to do your taxes while on the road
In order to be a digital nomad, it is necessary to master the art of saving space; you must limit what you pack in your suitcase or backpack to only the necessary items.
Is there a way to monitor your taxes without carrying a pile of documents and receipts while traveling?
Lauren suggests transforming your tax procedures into a digital format.
She recommended having a reliable digital system for monitoring expenses and submitting quarterly tax payments while on the move. The ideal solution is to use an accounting platform such as Rounded, which enables you to save receipts and automate expense tracking by connecting to your bank account. If you don’t use Rounded, she suggested keeping electronic receipts in a Google Drive folder to avoid misplacing them while traveling.
When things get hectic, hire an accountant
Tax professionals are often sought by freelancers to assist them in fulfilling their financial responsibilities to the ATO. Digital nomads, in particular, stand to greatly profit from enlisting the aid of a tax specialist.
Thiel suggested that the lives of digital nomads undergo frequent changes on a yearly basis. These changes involve alterations in their residency, purpose and destinations of travel. To keep things in order despite their constantly changing location, seeking the assistance of a tax expert can be beneficial.
We have a guide available that can assist you in determining whether you require the services of a tax accountant, a bookkeeper, or both.
Travel expenses: What counts and what doesn’t?
Expenses can be one of the most challenging aspects of digital nomad taxes. It may be difficult to determine what qualifies as a travel expense if you are working and travelling simultaneously.
The ATO specifies that travel expenses are only claimable if they are incurred while performing work-related duties. This means that if travel is essential for your job, you can report your transportation expenses (including airfare), accommodation, and meals as business costs.
If your travels are non-work related and you happen to be working while on the go, then it is unlikely that you can consider those travel expenses as business expenses.
It is a useful guideline to ask oneself whether a task can be performed at home with ease or if it requires traveling.
If it is possible for you to complete it remotely, then it is likely that you cannot classify it as an expenditure.
Here are a few examples:
If you have a client in London, and you travel there for the purpose of working in their offices and delivering training, it is probable that you can classify your airline tickets, fuel expenses, and accommodation costs as eligible business expenses.
If you fly to Los Angeles to visit friends for a month but have no clients or business events there, you cannot claim your travel expenses as you could easily work on your freelance business from home.
You will be traveling to Perth for a three-day professional conference, followed by an additional week of surfing and sightseeing. If this is the case, you may be eligible to request for reimbursement for a portion or all of your airfare to and from Perth, your hotel stay and any expenses incurred during the conference. Keep in mind that expenses incurred after the conference cannot be claimed.
Having a tax professional on your side becomes increasingly crucial as your travel plans become more complex.
Lauren clarified that our responsibility is to assist in obtaining the highest amount of permissible deductions within legal limits, while also preventing a potential audit by refraining from claiming non-deductible expenses.
Keeping a diary for travel expenses
It is advisable to maintain a record of your expenditures for tax purposes if you intend to travel extensively for work. The Australian Taxation Office (ATO) suggests that you do so if you are away from your Australian home base for six or more consecutive nights.
You must maintain a record of your travel dates, destination, and any business expenditures made during your trip, such as food purchases and accommodation reservations, in this journal.
You can utilize this document not just for monitoring your travel expenditures, but also as proof in case the ATO demands verification of your declared items and their corresponding distributions.
It is recommended to convert your travel journal into a digital format. You can utilize a basic Google spreadsheet or store a Word document in Dropbox. Moreover, you can input your trip dates alongside specifics into your digital schedule.
Figuring out your tax residency
Your legal status as a tax resident can be impacted by excessive travel, determined by the duration of your absence from Australia and your activities during your stay in a foreign nation.
To ascertain tax residency in Australia for a particular tax year, the ATO employs the Resides Test. There is no fixed duration of absence from the country that mandates a change in tax residency.
Your Australian tax residency is not solely determined by your physical presence in the country; rather, it takes into account several other factors such as your conduct and habits during your stay in Australia. The ATO will evaluate elements like:
Do you regularly spend time in Australia?
Do you have any connections with Australia through family or social relationships?
Have you developed a regular schedule in Australia?
Are you currently renting or do you possess a residence in Australia?
This ATO webpage provides information on Australian tax residency.
Living an exciting and fulfilling life as a digital nomad should not be hindered by taxes. Enlisting the assistance of a tax professional and utilizing appropriate software can allow you to operate your business remotely while still achieving financial success come tax season.
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