If you're only going to operate your business overseas, you don't need to apply for an ABN.
Australians have for decades worked and started businesses overseas. One of the more complicated areas of income tax law relates to the definition of a resident. When someone is classed as a resident by the Australian Taxation Office this can have major income tax consequences.
Q. I'm a 26-year-old Australian. I currently have a two-year working holiday program visa for Canada. I was there last summer and will be going back for the final year of my visa in early January but I'm hoping to stay longer. I would like to operate a small business in Whistler filming learner skiers and snowboarders.
I don't know if I should get an ABN and register the business here or if I should be trying to register it as Canadian. I have looked on the ATO website regarding taxes but couldn't find much information about how I will be taxed operating a business that provides a service rather than goods. Can you please help me with any information or advice?
A. As to where you should be registering your business, if you are only going to operate it in Canada, you will not need to apply for an ABN in Australia. You should check the Canadian tax authority's website for guidance, and if this doesn't help seek the assistance of a local accountant.
As to how your income will be taxed, that will depend on whether you are classed as an Australian tax resident. The test to work out a person's tax residency at first appears to be very simple as it is based on the number of days a person has lived and worked in Australia. Unfortunately the tax office looks beyond this simple days test.
Where a person spends more than 182 days away from Australia in a year they can make a case for being a non-resident for income tax purposes. To truly decide whether they are a non-resident the tax office takes other facts into consideration such as the intention of the taxpayer.
If it is really your intention to effectively leave Australia on a permanent basis to work in Canada, and this can be supported by the fact that you are not maintaining a residence in Australia and can demonstrate you will be living in Canada for a long period of time, you will not be classed as an Australian resident for income tax purposes.
If you are a non-resident for Australian tax, any income you earn in Canada, including wages and business profit, will only be taxed there. If you then did work in Australia you would be taxed here as a non-resident at the higher individual non-resident tax rate.
If the ATO can class you as an Australian resident you will pay tax on your wages and business profit in Australia, but receive a credit for any Canadian tax paid to reduce your final tax payable in Australia. Before making any decisions you should seek assistance from an accountant that specialises in this area.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org.Tax for small business, a survival guide, by Max Newnham, is available in bookstores and as an ebook.