The Board of Taxation (the Board) released a consultation guide for the review of the income tax residency rules for individuals.
We reported here that in July 2018 the Government announced the release of the Board’s report on, and support for, reforming the tax residency model for individuals. The Board is now seeking further consultation contained on the key recommendations in its earlier report.
The new residency tests would be designed to give greater certainty, remove complexity, and ensure integrity. Consistent with its first report, the Board considers a primary bright-line test for both inbound and outbound individuals together with, where needed, a secondary ‘factor’ test is appropriate.
The Board suggests adopting the relatively common global standard of a 183-day test under which an inbound individual will automatically become a tax resident if they are present in Australia for 183 days or more in any 12-month period.
For outbound inbounds who may be ceasing residency, the Board may recommend a different bright line test but have not included any recommendations as to the specific number of days at this stage.
Individuals who do not satisfy any of the bright-line tests, must apply a secondary test known as the ‘factor test’.
The preferred model for the factor test is to adopt a list of relevant factors to ensure simplicity and certainty. The Board will examine tests used by other countries and seeks consultation on which factor or blend of factors is preferred. It is also considering applying a weighting or points style system to the factors such that an individual would require a certain number of ‘points’ to be regarded as a resident or non-resident.
The factors include:
time spent in Australia – a day’s test;
immigration status such as citizenship or permanent residency status;
whether the individual’s family is largely located in Australia;
whether the individual has readily accessible Australian accommodation (owned or rented) that the individual uses; and
economic ties such as employment or business interests.
The Board also intends to introduce anti-avoidance measures so that individuals remain Australian residents unless and until their tax residency status is established in another jurisdiction. This is targeted to prevent ‘residents of nowhere’.
Other options the Board is considering include reforming the outdated residency superannuation test in the current rules as well as implementing part-year residency rules without creating further complexity or uncertainty.
Importantly, none of the above measures are currently law and may not become so depending on the outcome of the consulting and political processes. Notwithstanding this, submissions from advisors, industry, and key stakeholders will influence the final recommendations of the Board. If you would like to make a submission or have any questions in relation to the individual tax residency rules, please contact us at Sladen Legal.
Special Counsel | Accredited specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia