Budget brings a simplified global outlook to decades old residency rules

Tax & Super Australia (TSA) says the Federal Budget’s simplification of the individual residency rules through a “bright line” test will significantly reduce the uncertainty when determining whether an individual is an Australian resident or not.

TSA’s tax counsel John Jeffreys said the test, recommended by the Board of Taxation, asks whether an individual has been in Australia for more than 183 days. “If the answer is, “yes”, then that person is a tax resident of Australia,” Mr Jeffreys said.

“This is much more straightforward than the decades old existing test, which states that a person is a resident of Australia if they reside in Australia.  You have to read a lot of court decisions to work out what that term means,” Mr Jeffreys said. “Also, if the “resides” test is not applicable, you then have to determine, among other things, whether you intend to take up residence in Australia and whether you have a permanent place of abode outside Australia.”

“Due to people travelling extensively around the world in modern times — with the exception of COVID-19 limiting recent travel — residency issues could be very difficult to determine.”

However, despite the simplification, Mr Jeffreys did note that there was still some room for interpretation in the new test.  “Also, when Parliament puts those recommendations into legislation, it can often be the case that the legislation wording does not quite reflect what was intended, creating further interpretative difficulties.”

The change is set to come into effect from the first income year after the legislation’s Royal Assent.  “Residency rules are a fundamental part of the tax system, so we’d expect a long and detailed consultation. This means the rules may not come into effect until 1 July 2023, or even later.”

For further comment, please contact TSA tax counsel John Jeffreys:
Mobile: 0416 250 461
Email: jjeffreys@taxandsuperaustralia.com.au

Tax & Super Australia (TSA) is a not-for-profit organisation that provides practical tax, super and accounting information for more than 4,000 members and a tax community of more than 15,000.