Tax tips for expats living in China

Our Managing Director, Michael Derin, has just returned from a whirlwind trip to China where he presented as a keynote speaker at AustCham’s Money Sense event. Michael presented on the complex tax issues being faced by expatriates in China, and how to combat this. With a large Australian expat community in Shanghai, having a firm like Azure Group based locally in China can remove a huge headache when putting together an effective tax strategy.

Michael’s presentation covered the following key points:

• Australian tax lodgment and the importance of complying with Australian tax while living overseas
• China tax implications and tax effective ways to plan out your local salary package
• International tax planning opportunities for foreigners living in China

The following case study highlights the importance of understanding your tax status as an expatriate:

AAT Case [2013] AATA 130; Re Mayhew and FCT

In a recent court case, the taxpayer commenced his employment with an engineering company in Abu Dhabi in December 2007. He leased his family home in Brisbane to his son and his wife also did not join him for the first 16 months. The taxpayer argued that although he maintained ownership of the Brisbane residence, neither he nor his wife had any intention to live in it again. Therefore, he thought himself is not tax resident for Australian tax purposes in the financial year ended 30 June 2008.

However, the Commissioner took a different view of his case and still contended the taxpayer was still a resident of Australia during the year in question. The commissioner amended the taxpayer’s assessment for the 2008 income year and included an additional $52,521 as assessable foreign source income, derived from the taxpayer’s employment in the United Arab Emirates (UAE).

This case took five years fight between the commissioner and the taxpayer and finally in last month, the tribunal ruled in favour of the taxpayer and concluded that the taxpayer handled his departure from Australia, and his relocation to the Middle East, “in a manner consistent with a person who had resolved to permanently leave Australia”. The taxpayer had a permanent place of abode outside of Australia and was therefore not a resident of Australia for tax purposes.

What we learn from this case:

• Even if you left Australia and have started your employment overseas, the tax Commissioner can still view you as Australian resident for tax purposes.
• In Re Mayhew’s case, the taxpayer handled his departure in a manner consistent with a person who plans to leave Australia permanently and he established a permanent place of abode outside of Australia and was therefore the tribunal held that the taxpayer was not a resident of Australia for tax purposes.
• However, many of you may not handle your departure properly when you left Australia in order to be treated as foreign residents for Australia tax purposes.

Please visit our China website for more information on how Azure Group can assist you with your accounting needs in China http://www.azuregroupchina.com.au/. 

This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions.  Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.