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September 18, 2023 By Jess Kitchin

How timing turned an Aussie's tax-free bonus into a taxing hole!


In both business and taxation, timing is often the unsung hero that quietly shapes outcomes. A recent tax case is a stark reminder of this reality.

Our saga begins with a taxpayer stationed in Kuwait for a non-residential work assignment. As he navigated the complexities of a new job, there was the promise of a significant 'milestone bonus', a motivating beacon of hard-earned rewards to come.

However, unforeseen circumstances delayed the employer from disbursing the bonus at the agreed-upon time, a situation as unpredictable as sandstorms in the Kuwaiti desert.

When his work ended, our man picked up his adventure hat and decided to head down under – calling Australia home, and gaining resident status. Post-migration, his performance bonus finally arrived, albeit belatedly and parceled over a series of payments.

Wherein the plot thickens was when the ATO stepped in, issuing amended tax assessments that deemed these bonus payments taxable. The crux of the dispute orbits around the time the milestone bonus was derived.

A generally accepted axiom is that non-residents are only taxed in Australia for income earned within the country. This establishes a clear implication—if the bonus had been received by our taxpayer while in Kuwait, Australian taxation would have been irrelevant.

However, the ATO posits that employment income is typically derived on receipt—when it's physically received by the taxpayer—not when the promise of it is made. Therefore, since our taxpayer became an Australian resident at the time of receipt, the bonus, now deemed employment income, becomes subject to taxation.

This twist in the narrative underlines the significant influence of timing on taxation matters. Had the bonus been paid on schedule in Kuwait—a country without income tax—our taxpayer would have enjoyed his reward tax-free. Instead, a delayed payment rendered the bonus taxable, highlighting an intricate crossover of international taxation and timing.

In the realm of business, aligning tax-affairs with the pulse of time could be your most potent strategy. If questions about overseas income or tax residency create a cloud of uncertainty, remember the professionals at your side, ready to guide and support. Tax matters may get tricky, but with the right experts alongside, every twist and turn could lead to growth and understanding.

About Author

Jess Kitchin

Jess is our marketing gal for all Trekk offices, locations, and projects. There's usually a large buzz of projects and activities across all the offices that she's juggling too kick our marketing goals! She started in our Mount Isa office all the way back in 2010 and spent a couple years working and studying full time to gain her Bachelor in Business (Management & Marketing) which assisted her to rise as our Marketing Director. Outside of work she's a bit of a book-worm, often challenging herself to read a book a week. Her favourite genres are historical fiction, psychological thrillers and fantasy. She's got a small group of friends that she usually enjoys a 'Friday wine' or two with, and is a bit artsy - So she might zen out to some doodling, or volunteer for local organisations to do their graphic design.

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