As the digital nomad lifestyle gains popularity, many Australians are embracing the freedom to work remotely from any corner of the globe. While the notion of trading a traditional office desk in the city for a cozy café by the beach in Bali may seem idyllic, handling taxes as a digital nomad can present challenges.
It’s crucial to understand tax regulations when working overseas to prevent double taxation, unforeseen expenses, and legal complications. Here are some important tax factors for digital nomads to keep in mind.
Determining your tax residency status
If you’ve lived overseas for an extended period, you may assume that means you’ve bid farewell to your tax obligations in Australia too. However, just because you currently live somewhere else in the world, doesn’t necessarily mean that the ATO no longer considers you an Australian resident for tax purposes.
With that in mind, determining your tax residency status is an important first step for all digital nomads working overseas to ensure you remain compliant and avoid any unnecessary tax bills. To determine your tax residency status, there are a few factors that will be taken into consideration, including how long you’ve lived away, your ties to Australia and if you have any intention to return to Australia.
For example, you may still be considered an Australian tax resident if you maintain strong ties to Australia (owning a home, business or having family interests in Australia).
Declaring foreign income
It’s not uncommon for digital nomads to earn income while they’re enjoying a stint of living overseas. But if you’re an Australian tax resident, it’s important to note that you’ll still need to declare your global income (i.e. money earnt from Australian sources as well as from overseas) on your Australian tax return, regardless of where you’re currently living.
Getting around double taxation
As a digital nomad, it’s also not uncommon to come across the issue of double taxation, i.e. both Australia and the country where you live attempting to tax you on the same income you have earnt.
Fortunately, Australia has tax agreements in place with numerous countries to avoid this issue. These agreements typically enable digital nomads to apply for a foreign income tax offset, allowing the tax already paid to the foreign country to be deducted from their Australian tax obligation. Nevertheless, it is crucial to comprehend the specifics of each tax agreement, as they differ from one country to another.
Understanding your superannuation
Being a digital nomad can make managing your superannuation challenging. If you are self-employed or employed by a foreign company, it’s up to you to guarantee contributions to your super fund. Unlike working for an Australian employer, there is no automatic super guarantee in place.
Moreover, in some countries, you might need to contribute to their own retirement savings plan too. It’s crucial to understand how these contributions align with your Australian superannuation and if you can merge them when you come back to Australia.
If you have a self-managed superannuation fund, becoming a non-resident can have tax implications to the fund. We recommend seeking advice regarding this before you permanently leave Australia.
What you can claim as a remote worker
Working as a digital nomad comes with the advantage of being able to claim tax deductions linked to your remote work setup. In Australia, potential deductions may include internet and phone bills, office supplies, software subscriptions, depreciation of equipment such as laptops or cameras, co-working space fees and in some cases, even travel expenses (if work related).
Remember to keep thorough records of your expenses and refer to the ATO guidelines for specific deductions that align with your circumstances.
Keeping on top of local tax obligations
Countries around the world have diverse tax systems, with some imposing state or local taxes alongside federal ones. When residing in a country for an extended period, you might also be responsible for social security payments. It’s essential to research the tax regulations of your host country, as not being aware of these laws does not excuse you from following them.
Digital nomads often underestimate the significance of these extra taxes, leading to unforeseen expenses. In nations with social security pacts with Australia, your contributions could count towards your Australian pension. Therefore, comprehending the existing agreements is crucial.
The 183-day rule
In many countries, a “183-day rule” is applied to establish tax residency. If you exceed 183 days in a specific country within a tax year, you could be considered a tax resident there, leading to local tax obligations. In such a scenario, you must report your income and fulfill tax requirements in that country, which might add complexity to your overall tax position.
It’s crucial to monitor the duration of your stay in each country to avoid inadvertently meeting the criteria for tax residency and facing extra tax responsibilities.
Seeking professional advice
With tax laws differing significantly across countries, handling taxes as a digital nomad can become overwhelming. Seeking guidance from a tax accountant or lawyer well-versed in international tax law is highly recommended, especially if you spend a substantial amount of time in different countries. They can assist in determining your tax residency, provide insights on tax treaties, and ensure compliance with Australian and foreign tax regulations.
To summarise…
Living the digital nomad lifestyle can be a dream come true for many. It can offer remarkable flexibility and adventure! But it also presents distinctive tax hurdles. It’s essential to comprehend your tax responsibilities both in Australia and internationally to steer clear of unnecessary fines and optimise tax advantages. By staying updated and consulting with experts, you can relish your journey around the world while managing your finances effectively.
If you’re a digital nomad or would like to become one, we’re here to help. Lemonade Beach can assist you in navigating tax residency complexities, double taxation issues, and deductions, ensuring your financial matters remain organised as you relish the flexibility of a digital nomad lifestyle.
