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Australian Tax Residency - Guidelines
Tax Residency - Background
Determining an individual's Australian tax residency status will often involve some complex assessments, largely because tax residency is determined on the facts of each case - and not on the basis of a numerical formula as applies in some other countries. As a "rule of thumb" however, if you leave Australia with the intention of residing outside the country for two or more years, and establish a home overseas, you will likely meet the minimum requirements to be considered as non-resident from your date of your departure from Australia. Subject to you obtaining professional advice confirming your position, that means you would not be liable for Australian tax on your offshore employment or other income, although you will need to consider the tax regime in your host country.
Resuming Tax Residency in Australia
Once your overseas assignment is over and you decide to come home, not only are you are coming home to family and friends, but you’re also coming home to a complex taxation system. There are some important issues to bear in mind, and ideally address, before you return to Australia.
When you return to Australia with the intention of staying permanently you will generally be treated as a resident for tax purposes from the date of your return. This means that you will become subject to tax on income (wherever it is earned) as well as being liable to tax from the sale of assets no matter where they are located. In addition, there are some special rules associated with the application of Capital Gains Tax (CGT) and the taxation of superannuation benefits.
Tests of Residency
The issue of residency can be complicated, and is very much dependent upon an individual's personal circumstances. However, we cannot stress enough the importance of clarity around the issue of residency and expats obtaining appropriate advice - preferably in advance of an assignment or accepting a contract. We currently see the ATO placing a considerable focus on this issue - and particularly where the expat is based in an area such as the Middle East with no income tax. A failure to address this issue can constitute an incredibly expensive mistake.
An individual is primarily a resident of Australia for taxation purposes if he or she resides in Australia within the ordinary meaning of the word "resides". However, residence in the normal sense is quite different from domicile and nationality. For example, a taxpayer may be held to be resident in Australia, "even though he lived permanently abroad, provided he visited Australia as part of the regular order of his life."
A person need not "intend to remain permanently in a place" to be found to reside there, but it seems that where the relative length or shortness of their stay in Australia is not decisive, the circumstances surrounding the visits will need to be considered. The Taxation Office treats every case on its own particular merits.
Some common situations, and the Australian Tax Office's (ATO), approach in terms of residency are covered in the table below:
may continue to be treated as an Australian resident for tax purposes.
are generally treated as a resident for tax purposes.
are generally treated as a resident for tax purposes.
will generally not be considered an Australian resident for tax purposes.
are generally considered to be an Australian resident for tax purposes from the date of your arrival.
will generally not be considered an Australian resident for tax purposes, from the date of your departure.
There are four tests of residency contained within the definition of 'resident' in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA. They are alternative tests in the sense that even if an individual is not a “resident” according to "ordinary concepts" - Test 1 below - they may fall within one of the other tests - There are four main tests for residency:
- Residency – the “resides” test
- Residency – the “domicile” test
- The 183 day rule, and
- The Superannuation test
(1) Residency according to "Ordinary Concepts".
This test provides that whether a person resides in Australia is a question of fact that depends on all the circumstances of each case, with the following factors to be considered:
- If the person returns to the country of origin - the frequency, regularity and duration of those trips and their purpose can be decisive factors. If the only reason for the person's absence from Australia is business, this may not be enough in itself to support a claim that the person is not a resident.
- The extent of family and business ties which the person has, in Australia and in the country of origin.
- Whether the individual is accompanied by his or her family to Australia and on return trips to the country of origin.
- Whether the person is employed in the country of origin.
- Whether a place of abode is still maintained in the country of origin or is available for the person's use while there.
- Whether personal effects are kept in Australia or in the country of origin.
- The extent to which any assets or bank accounts are acquired or maintained in Australia and in the country of origin.
- Whether the migrant has commenced or established a business in Australia.
(2) The domicile test
An individual is a resident of Australia under the domicile test if he or she has a domicile in Australia unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia. Under the Domicile Act 1982 , a person acquires a domicile of choice in Australia if the person intends to make his or her home indefinitely in Australia. The domicile test is discussed in Taxation Ruling IT 2650. Domicile generally means the country you were born in unless you migrate to another country - then you adopt a "domicile of choice".
(3) The 183 days test
A returning expatriate, or new migrant having regard to their terms of their migrant visa, who is present in Australia for more than 183 days (continuously or intermittently) in a tax year is, generally speaking, a resident of Australia under the 183 days test. This is unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence.
(4) The Superannuation Test
This is a “statutory” test and an alternative to the ordinary tests of residence – that is to say that individual’s may be “residents” under this test when they do not in any way reside in Australia in the ordinary sense. In effect individuals are “deemed” to be residents if they “are an eligible employee for the purpose of the Superannuation Act 1976 or is the spouse or a child under 16 years of age of such a person.' This test applies mainly to people working for the Australian Government overseas.
It is possible for an individual to be tax resident in two countries concurrently, in other words to have dual residency – since the fiscal authorities may not apply complementary rules. Additionally, the fact that you are no longer resident in your prior host country, or country of origin if you are a migrant, does not necessarily mean you are resident in Australia – that will be a question determined in all the circumstances and having reference to the rules above and may involve reference to the Double Tax Treaty between Australia and the host country, if one exists.