Simplify the individual tax residency rules

August 2018

The Board of Taxation has released its review of the current tax residency rules for individuals, concluding that the existing residency rules are no longer appropriate and should be reformed.

Tax residency rules are often challenging for individuals and the Australian Board of Taxation's recent review has flagged reforms are required as current rules are no longer appropriate for the ways individuals enter and leave Australia.

The review found that the current rules:

  • No longer reflect global work practices in an increasingly global mobile labour force
  • Impose an inappropriate compliance burden on many taxpayers with relatively simple affairs as the rules are inherently uncertain to apply, include outdated concepts and rely on a 'weighting' system that leads to inconsistent outcomes
  • Are an increasingly prevalent area of dispute for taxpayers and the ATO given the fundamental difference in tax consequences for residents and non-residents

The Board has recommended replacing the current rules with separate rules for individuals establishing residency (i.e., coming to Australia) and ceasing residency (i.e, leaving Australia).

When it comes to individuals arriving in Australia the Board has suggested that an initial 'days in Australia' test is adopted so that the majority of individuals can determine their residency status quickly and with certainty.

The Board recommends that for individuals who do not satisfy the 'days in Australia' test, an objective test based on the individual's facts and circumstances should then apply to determine residency on the basis of specific key factors (to determine the individual's connection or relationship to Australia).

Further, the Board recommends that the new residency test for outbound individuals ensures that all individuals who have established residency in Australia continue to be treated as residents unless and until tax residency is established in another jurisdiction.

More information

Tax residency can be complex and it is worth discussion your situation with an experienced advisor on international tax matters to enable you to plan for taxation, voluntary disclosure of offshore assets, and super. Contact us on 02 9957 4033.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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