# Non Habitual Residency - from an Australian perspective



## rubytwo

Hello all,

I’m hoping that someone can help me with a question about our tax declaration within the NHR regime. 
I understood that part of the NHR is an exemption from tax on overseas income. However our accountant has told me that the tax that I have already paid overseas is taken into consideration when determine the exemption. The trouble is that the Australian tax year runs after the European tax year so a lot of the income in Australia has not yet been taxed and thus I’m declaring untaxed income....that will be taxed in the future. I suggested declaring the tax that will be applied in Australia using the tax rate that will be applied but the accountant said that she couldn’t do this. She also declared only the income from our rental property in Australia without any of the offsetting costs.
I am concerned that I will end up be fully taxed twice which sort of defies point of NHR.

Sorry I appreciate that is a bit long winded but if anyone can off some advice on this subject, especially on Australian income, it would be appreciated.
PM me if you would prefer....


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## Naaling

rubytwo said:


> Hello all,
> 
> I’m hoping that someone can help me with a question about our tax declaration within the NHR regime.
> I understood that part of the NHR is an exemption from tax on overseas income. However our accountant has told me that the tax that I have already paid overseas is taken into consideration when determine the exemption. The trouble is that the Australian tax year runs after the European tax year so a lot of the income in Australia has not yet been taxed and thus I’m declaring untaxed income....that will be taxed in the future. I suggested declaring the tax that will be applied in Australia using the tax rate that will be applied but the accountant said that she couldn’t do this. She also declared only the income from our rental property in Australia without any of the offsetting costs.
> I am concerned that I will end up be fully taxed twice which sort of defies point of NHR.
> 
> Sorry I appreciate that is a bit long winded but if anyone can off some advice on this subject, especially on Australian income, it would be appreciated.
> PM me if you would prefer....


With all due respect, I think you need another accountant.

AS far as NHR is concerned, the important issue is that Australian income must be taxable in Australia, not that tax has actually been paid. Last year I just gave my accountant the ATO assessment notice, for the most recent tax year, that clearly shows that my Australian income is taxable in Australia, and it was accepted.

Australia is in an unusual situation in that it doesn't have a DTA with Portugal. I was amazed when I found that out!
Also, if you are earning your income in Australia, then it is important that you remain resident in Australia for tax purposes. (sorry if you knew this already)


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## rubytwo

Naaling said:


> rubytwo said:
> 
> 
> 
> With all due respect, I think you need another accountant.
> 
> 
> Also, if you are earning your income in Australia, then it is important that you remain resident in Australia for tax purposes. (sorry if you knew this already)
> 
> 
> 
> Thanks Naaling,
> 
> Finding a new accountant is easier said than done. The ones that I had found previously gave up on the Australian issue. This accountant has lodged our declaration but I understand that I have until May 31 to make alterations to the declaration.
> 
> Why is it important to stay resident for tax purposes? As a non resident your Australian income is still be taxable.
Click to expand...


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## Naaling

rubytwo said:


> Naaling said:
> 
> 
> 
> Thanks Naaling,
> 
> Finding a new accountant is easier said than done. The ones that I had found previously gave up on the Australian issue. This accountant has lodged our declaration but I understand that I have until May 31 to make alterations to the declaration.
> 
> Why is it important to stay resident for tax purposes? As a non resident your Australian income is still be taxable.
> 
> 
> 
> I will send you a PM
Click to expand...


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## RichardHenshall

Naaling said:


> ... Also, if you are earning your income in Australia, then it is important that you remain resident in Australia for tax purposes. ...


How can you be resident in Australia and qualify for the NHR scheme in Portugal simultaneously?


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## Naaling

RichardHenshall said:


> How can you be resident in Australia and qualify for the NHR scheme in Portugal simultaneously?


Tax residency and residency are two different things.

In some instances (shares), a person has to be tax resident in Australia to be able to qualify for NHR.


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## RichardHenshall

A person needs to be tax resident in Portugal to qualify for Portugal's NHR scheme.


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## Naaling

RichardHenshall said:


> A person needs to be tax resident in Portugal to qualify for Portugal's NHR scheme.


I am tax resident in both countries,.and yes, it is legally possible!


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## RichardHenshall

So you declare worldwide income and gains in both countries, account for tax twice and have no double taxation treaty to avoid any double taxation?

I fail to see how you benefit from this status.


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## Naaling

RichardHenshall said:


> So you declare worldwide income and gains in both countries, account for tax twice and have no double taxation treaty to avoid any double taxation?
> 
> I fail to see how you benefit from this status.


My situation isn't that complicated. 
I earn all of my income in Australia. As a resident that income is taxed in Australia, and therefore eligible for exemption under NHR. No tax is paid in Portugal.


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## RichardHenshall

I see. So you're only exposed to double taxation on capital gains and possibly any inheritance or probate taxes on death?


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## Naaling

RichardHenshall said:


> I see. So you're only exposed to double taxation on capital gains and possibly any inheritance or probate taxes on death?


Capital gains (category G income) are also exempt if it is taxed in the country of origin.
Australia doesn't have inheritance tax.


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## RichardHenshall

I'm not 100% convinced about Capital Gains only being taxed in Australia but if you're correct it it seems that your double-residency mainly results in single-taxation, which may be a good result for you.

Most NHR applicants use single-residency to obtain low- or no-taxation.


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## Naaling

RichardHenshall said:


> I'm not 100% convinced about Capital Gains only being taxed in Australia but if you're correct it it seems that your double-residency mainly results in single-taxation, which may be a good result for you.
> 
> Most NHR applicants use single-residency to obtain low- or no-taxation.


This is taken from Financas NHR document.

2. Income in category B (Self Employment), E (Capital Income), F (Real
State Income) and *G (Increase in Wealth)* – Art 81, paragraph 5 of the CIRS

Income in category B (Self Employment), obtained through high added
value rendering of services of a scientific, artistic or technical nature, or
from intellectual or industrial property, as well as, from providing information
regarding an experiment carried out in the commercial, industrial or scientific
areas, *and those in category* E, F and *G*, obtained abroad by non-regular
residents, *are exempt if* alternatively:

a) They are taxed by the source State/nation, according to the
convention to terminate double taxation entered into by Portugal
and the source State; or

b) *They can be taxed in another country, in cases where the convention
to terminate double taxation has not been held into under the terms
defined by the OECD Model Tax Convention on Income and Capital,*
as long as it is not a territory subject to privileged tax systems
(defined by Ordinance n. 292/2011, November 8) and, as long as
the corresponding income, cannot be considered to have been
obtained on Portuguese territory, as per Art. 18., n. 1 of the CIRS of
the Personal Income Tax (IRS) Code.


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## ssommerville6

Naaling said:


> My situation isn't that complicated.
> I earn all of my income in Australia. As a resident that income is taxed in Australia, and therefore eligible for exemption under NHR. No tax is paid in Portugal.


ahh so because there is no DTA, we can not take advantage of 0% tax, if we earn australian income (via company dividends) but are not tax residents in australia and only tax residents in portugal? (some back ground i am a director of a company and looking to move to portugal, and fiure potentially could use the NHR to pay 0% tax on my income paid to me from my company dividends)


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## TonyJ1

ssommerville6 said:


> ahh so because there is no DTA, we can not take advantage of 0% tax, if we earn australian income (via company dividends) but are not tax residents in australia and only tax residents in portugal? (some back ground i am a director of a company and looking to move to portugal, and fiure potentially could use the NHR to pay 0% tax on my income paid to me from my company dividends)


Dividends would be tax free under the nhr rules - does not require effective taxation in Australia


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## TonyJ1

Naaling said:


> This is taken from Financas NHR document.
> 
> 2. Income in category B (Self Employment), E (Capital Income), F (Real
> State Income) and *G (Increase in Wealth)* – Art 81, paragraph 5 of the CIRS
> 
> Income in category B (Self Employment), obtained through high added
> value rendering of services of a scientific, artistic or technical nature, or
> from intellectual or industrial property, as well as, from providing information
> regarding an experiment carried out in the commercial, industrial or scientific
> areas, *and those in category* E, F and *G*, obtained abroad by non-regular
> residents, *are exempt if* alternatively:
> 
> a) They are taxed by the source State/nation, according to the
> convention to terminate double taxation entered into by Portugal
> and the source State; or
> 
> b) *They can be taxed in another country, in cases where the convention
> to terminate double taxation has not been held into under the terms
> defined by the OECD Model Tax Convention on Income and Capital,*
> as long as it is not a territory subject to privileged tax systems
> (defined by Ordinance n. 292/2011, November 8) and, as long as
> the corresponding income, cannot be considered to have been
> obtained on Portuguese territory, as per Art. 18., n. 1 of the CIRS of
> the Personal Income Tax (IRS) Code.


Under the OECD Model Tax Convention, the right to tax capital of financial investments is always reserved to the country of residence - therefore capital gains on financial instruments would not qualify in the case of Australia. In the case of fixed property, it would qualify, as under the OECD Model Tax Convention, the country of residence has the right to tax such capital gains. Suggest have a read of article 13 - 5 of the model treaty (readily available using a search engine)


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## Naaling

TonyJ1 said:


> Under the OECD Model Tax Convention, the right to tax capital of financial investments is always reserved to the country of residence - therefore capital gains on financial instruments would not qualify in the case of Australia. In the case of fixed property, it would qualify, as under the OECD Model Tax Convention, the country of residence has the right to tax such capital gains. Suggest have a read of article 13 - 5 of the model treaty (readily available using a search engine)


Thanks for the information. I need to know this. 
Are you saying that I will end up paying capital gains in both countries?


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## TonyJ1

What I am saying is that these are the rules for the NHR. You will have to figure out what are the consequences in Australian as a non resident.

You have the option of submitting the Portuguese tax return under ordinary rules and claiming the tax paid in Australia (should that be the case) (the limitation of the tax being deducted according to the OECD model does not apply to 'ordinary' rules) as a deduction against Portuguese tax due on the same income, although then you may lose the benefits of the nhr on other income - you have to evaluate the impact, and you may swing back and forth from year to year whilst you have the nhr status.


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## Naaling

TonyJ1 said:


> What I am saying is that these are the rules for the NHR. You will have to figure out what are the consequences in Australian as a non resident.
> 
> You have the option of submitting the Portuguese tax return under ordinary rules and claiming the tax paid in Australia (should that be the case) (the limitation of the tax being deducted according to the OECD model does not apply to 'ordinary' rules) as a deduction against Portuguese tax due on the same income, although then you may lose the benefits of the nhr on other income - you have to evaluate the impact, and you may swing back and forth from year to year whilst you have the nhr status.


Once again, thank you for taking the time to discuus this. 

While I understand what you are saying about OECD rules, I don't understand why I would need to submit a Portuguese tax return under "ordinary rules" in order to claim the tax paid in Australia. Particularly, since the capital gain in question is not covered by NHR and would be taxed under ordinary rules anyway.


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## TonyJ1

Naaling said:


> Once again, thank you for taking the time to discuus this.
> 
> While I understand what you are saying about OECD rules, I don't understand why I would need to submit a Portuguese tax return under "ordinary rules" in order to claim the tax paid in Australia. Particularly, since the capital gain in question is not covered by NHR and would be taxed under ordinary rules anyway.


You are right - missed that one. Confused it


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