Government To Consider Individual Tax Residency Rules

This week the government released the Board of Taxation report on a new tax residency model for individuals with a view that further analysis and consideration on the key recommendations is required before the Government takes a position. 

Foreign individuals, who are working in and out of Australia, should be aware of these new recommendations.

The Board of Taxation report consists only of recommendations so there is no guarantee when or if they will becomes law. Nevertheless, the aim, as the Board of Taxation puts it, is to:

• modernise the tax residency tests to reflect current global work practices;

• provide certainty to individuals;

• reduce the tax compliance costs for ordinary taxpayers;

• remove outdated concepts; and

• adopt factors that are easy to understand.

The Board of Taxation proposed a “two-step” approach, which begins with a primary bright line test to remove the facts and circumstances-based tests for most individuals.

The first test for tax residency, adopted from New Zealand and the United Kingdom, is satisfied if an individual has been present in Australia for 183 days or more in a 12-month period. Individuals who do not satisfy this test, will then be subject to the secondary test.

The secondary test will be based on the specific facts and circumstances, including:

• citizenship or permanent residency status;

• where an individual’s family is located or resides;

• whether an individual has readily accessible Australian accommodation;

• whether an individual has substantial Australian economic ties; and

• the length of time spent in Australia over a medium term period.

There is a consensus amongst taxpayers and advisers that the existing tax residency rules are complex and outdated. All parties would undoubtedly welcome simplification of the residency rules.

If you have any questions about tax residency, please contact:

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal