Where are you from? And what this means for your tax position...

As an expat turned dual citizen this is a question I am asked frequently in Australia. My response varies from America, to Colorado and if asked for even more detail, Denver. Hooray for the Avalanche’s Stanley Cup win!!!!

Returning to the US where I am not the one with the accent should feel like slipping into a well-worn glove, but sometimes I feel like the foreigner. There is real readjustment period, and I am not just talking about jetlag or driving on the other side of the road. Ask any repatriating expat and I am sure they could commiserate with this sentiment.

Reconnecting with family, friends, and places I once called home always prompts me to reflect on my own origin story. It was fabulous to celebrate my mother’s 70th birthday with all of my immediate family while the country celebrated Juneteeth.?An annual reminder that my ancestors once called Africa home.

Today’s edition of Mobility Matters considers the concept of home as it relates to tax. Let’s explore how home impacts your tax position on three horizons:

1. Residency – the concept of domicile ?
2. Capital Gains Tax on a main residence
3. Benefits provided while working away from your home

Is home where you live?

Flying across the Pacific Ocean, I must have seen the, “I still call Australia Home” video 10 times over the course of the 15-hour flight to LAX. ?Emotionally, many people think of home as where they grew up or where their extended family dwell, but the tax office doesn’t necessarily agree.

From a tax perspective, Australia becomes your home and you are considered a tax resident when you meet one of 4 tests:

-???????Resides test

-???????Domicile test

-???????183-day test

-???????The Commonwealth superannuation test

The resides test is the primary or common law test and while not black and white can usually determine if your tax home is Australia. It looks at intention, facts, and circumstances to make an assessment. If it’s still not clear, the other 3 statutory tests can provide a conclusive result. ?

Residency effects many tax outcomes including but not limited to:

-???????Tax rate and access to the tax-free threshold

-???????Withholding tax for non-residents

-???????Eligibility for the 50% capital gains tax discount

We are all waiting to see what the new government will do with the Board of Taxation’s proposed changes to residency. Stay tuned for updates as they present themselves.

Is home the place I will retire and eventually live out my golden years?

There can’t be a conversation on home and tax without mentioning domicile.

One of the situations where you might encounter domicile in the world of tax is when a lucky person finds themselves with close ties to two countries at the same time. This situation might double the hugs but getting double taxed because you are a resident in two countries doesn’t sound so pleasant.

Where a double tax agreement exists, there will be guidance to help the world traveller determine who gets the right to tax their income. Often one of the tests is the availability of a permanent home. ?According to the OECD, a person's domicile is their permanent home, the place to which they always intends to return. Residence is the place where an individual lives for a certain period of time, while domicile is the place where an individual makes his permanent home.

The Australian Tax Office states that your domicile is your permanent home and is usually something more than a physical residence. To be more specific there are 3 types of domicile.

If you used me as an example applied to the three you would get the following results:

• Domicile by Origin: I was born in the US
• Domicile by Choice: I have permanently immigrated to Australia with citizenship
• Domicile by operation of Law: As an adolescent I spent a year living in Sweet Home, Arkansas with my father when my parents got divorced. As a minor I expect my domicile switched to follow my guardian at the time. Thank goodness women before me fought hard so my domicile can be independent of my husband or father!

Where is your domicile?

It goes without saying that if you need to get this technical about your tax residence you probably need a tax agent.

What happens when you sell your home?

In Australia, purchasing a home does not automatically mean you qualify you for tax concessions. You must establish it as your main residence.

Once this has been established you have access to:

-???????Main residence exemption from capital gains tax

-???????Exemption from Land Tax

Expats beware

Heading off for your international assignment and renting out your main residence can have a real and material impact on your tax position. Here are just a few items to consider:

• Renting out your home for more than 6 years could effect access to full capital gains tax exemption for the property
• Periods of Australian non-residence will impact the eligibility for capital gains tax discount
• Register for land tax
• If you sell your property once you have arrived in your new country how will you be taxed. It might not be exempt there too!!!
• And the big doozy... you are not entitled to the main residence exemption from capital gains tax for property sold after 30?June?2020 if you are a non-resident at the time of sale! That is unless you satisfy the requirements of the life events test. Talk about a planning opportunity!!!

There could also be implications to your tax residence where loved ones remain living in your main residence while you are on assignment abroad and might otherwise be a non-resident. Leaving a property empty and without a tenant can mean that it is available to you. This can have adverse tax implications when applying a treaty.

Again, seek help from a tax advisor to ensure that you are prepared in advance of your move to understand the position your home plays in your tax residence and future capital gains tax exposure.

Living Away From Home Allowance (LAFHA)

Now that we’ve examined a couple concepts related to your home, let’s explore the tax benefits available to someone working away from their usual place of residence.

Many of you reading this might remember the extreme tax concessions on rental and living expenses available to anyone who was temporarily working away from their home a decade ago.

The rules are very different these days but for up to a year you could receive rent tax free and a food allowance at your temporary location if your usual home (located in Australia) is not rented out and available to you throughout the duration of your time away.

It’s hard to think of many situations where this would apply as the benefits have essentially been restricted to short term situations where the main residence is still being maintained. Noting there are special exemptions from these rules for FIFO and DIDO workers.

It is certainly no longer the tax holiday luring expats to our golden shores with the promise of rental allowances free of fringe benefits and income tax.

But what about business travel?

Check out this ATO guidance if you want more information on the deductibility of your unreimbursed travel.

It's important to note the main difference between a travel allowance and a LAFHA is that a:

• travel allowance can only be paid to cover deductible accommodation and food and drink expenses and incidental expenses incurred by an employee when they are travelling on work
• LAFHA is paid to provide compensation to an employee for the additional living expenses incurred by an employee because their duties of employment require them live at location away from their usual residence.

Or if this is all just too complicated you can always reach out to me for a chat.

As the dawn breaks on the final day of the 2022 financial year I encourage you to consider what home means for you, the expats in your mobility program or the international hires you welcome to your team. Undoubtedly, this concept will impact them financially and emotionally.

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Ursula Lepporoli is a highly sought after and well travelled global mobility tax expert - who enjoys helping her clients to find practical solutions to real world problems. As a partner at one of the leading firms she has access to a wide breadth of clients and enjoys sharing her learnings with her followers. Follow her, and?subscribe?to the Mobility Matters newsletter?here.

**The views expressed above are mine alone and are not tax advice. **