How is a non-resident Sole Trader in Australia taxed on freelance work?

Question

I am considering doing remote freelance work for an Australian business as a Sole Trader with an Australia Business Number (ABN). I am a non-resident in Australia. My question is: do I pay taxes on that business income in Australia or my home country? (Canada, which has a tax-treaty with Australia).

According to the ATO website it sounds like I do not pay income tax in Australia, so long as I don't have a "permanent establishment" in Australia. Reading the treaty, it seems as though a remote-worker with no physical presence is not a "permanent establishment". Is my interpretation correct?

[EDIT: previously, my question may have been interpreted that I will be physically present within Australia (and would therefore pay Australia income tax). This is not the case. I will be physically OUTSIDE Australia. But my ABN is registered in Australia (from when I was a student a few years ago).]

Answer 1

With respect to your comment on Victor's answer:

"Honestly, I am not sure, but I have been told by my client that they prefer for their contractors to have an ABN, otherwise they must automatically withhold %50 of the contract amount as tax."

Your client could be assuming all contractors must be treated the same, but there is a difference between an Australian contractor vs. a foreign contractor. Perhaps your client has only dealt with the former so far.

If your business is in Canada and not carrying on enterprise in Australia (i.e. you are doing all the work in Canada, not in Australia) then, as far as I can tell*, you wouldn't qualify for an Australian Business Number, nor would you need one to avoid the hefty withholding tax.

Rather, you'd provide your client with a prescribed declaration form (from the ATO), which would indicate that you/your business are not required to quote an ABN. Your client would need to keep this on file in case the ATO ever asked about the lack of withholding on payments made to you.

See Statement by a supplier not quoting an ABN. Quote:

Certain suppliers are not required to quote an ABN to a payer. In these cases, the suppliers can use the form Statement by a supplier (PDF, 145KB). This link will download a file to justify the payer not withholding from the payment to the supplier. [emphasis mine]

Notably, one of the conditions listed in the declaration form is:

• The supplier is not entitled to an ABN as they are not carrying on an enterprise in Australia. [emphasis mine]

FWIW, there is a related question at the Freelancing StackExchange:

• Doing business in Australia as foreign freelancer located overseas

^{* If your client hasn't been supplied with such a statement from a foreign contractor before, they may be more comfortable having a tax professional confirm such a finding, if they're not keen on interpreting tax rules from the ATO web site.}

---

One slightly-related note I'll add from the Canadian perspective, based on my own been-there and done-that: As you'd be invoicing a foreign company, you would not charge your client Canadian GST/HST. Instead, your supply of services to the foreign company would be considered zero-rated.

Nevertheless, even if all of your invoiced work is zero-rated, you can still register for GST/HST in order to claim input tax credits (ITCs) and get refunded the GST/HST portion of your business expenses. This can add up to the point where it is really worth claiming ITCs.

But, keep all of your receipts (and this applies to any case, not just the zero-rated case), as requesting the CRA refund the GST/HST your business paid without in turn having collected any will have the CRA asking for an explanation ("My supplies are zero-rated. My customer is foreign.") and perhaps detailed proof that GST/HST claimed back was only on account of reasonable business expenses.

p.s. Don't take my word for any of this. Do find a good tax professional who can help you. I wouldn't work as a contractor/freelancer without one, and especially not in situations like the one you describe.

Answer 2

If you are in Australia and do work in Australia you will need to complete a Tax Return in Australia and pay tax on any income earned in Australia.

With Canada having a Tax-treaty with Australia, this might mean that when you file your taxes in Canada you may get a tax credit for the taxes you paid in Australia, however this part you will need to check with the Canadian Government/Tax Agency.

Answer 3

Physical presence is where you are so income tax is specified in the country which you live in for most of the year. This is an international standard. This doesn't necessarily mean living in a house. People having a house in Canada but are mostly in hotels in Australia might be considered as Australian residents.