Sladen Snippet - Government to consider individual tax residency rules

On 9 July 2018, in a Media Release, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, announced the release of the self-initiated Board of Taxation report, dated August 2017, on a new tax residency model for individuals.  Minister O’Dwyer requested further analysis and consideration on the key recommendations before the Government takes a position on this matter. 

The Board of Taxation report consists only of recommendations and it may be quite some time before the recommendations become law (if at all). 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 of their tax residency status;
  • reduce the tax compliance costs for ordinary taxpayers by making the tests simpler;
  • remove outdated concepts; and
  • adopt factors that are easy to understand, reduce reliance on common law definitions and are less open to manipulation.

The Board of Taxation proposed a “two-step” approach, which would begin 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 facts and circumstances, objectively tested, of an individual against a list of key factors. A number of factors include:

  • citizenship or permanent residency status (or other immigration visa status and conditions);
  • where an individual’s family (or other significant social support network) is located or resides;
  • whether an individual has readily accessible Australian accommodation (owned or rented)
  • whether an individual has substantial Australian economic ties (such as employment or business interests); and
  • the length of time spent in Australia over a medium term period (for example, the preceding two to three income years).

There is a common consensus amongst taxpayers and advisers that the existing tax residency rules are complex and outdated. As seen in the recent case of Harding v FCT [2018] FCA 836, discussed here, the existing tests for tax residency are difficult to apply.

Whether the Government will adopt and legislate the Board of Tax recommendations is unknown, but it is positive that Minister O’Dwyer has requested further consultation on this issue. All parties would undoubtedly welcome simplification of the residency rules.

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

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

Neil Brydges
Special Counsel | Accredited specialist in Tax Law
Sladen Legal
M +61 407 821 157 | T +61 3 9611 0176
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia  

Kelvin Yuen
Sladen Legal
T +61 3 9611 0177
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia

Sam Campbell
Associate | Business Law
Sladen Legal
M +61 423 515 454 | T +61 3 9611 0135
Level 5, 707 Collins Street, Melbourne, 3008, Victoria, Australia