Changes to simplify your tax residency

For those of you who move between Australia and other countries around the world, the question of tax residency can be a nightmare. It’s anything but simple. And if you get it wrong it can have drastic ramifications.

In an attempt to ‘simplify’ the complex issue of individual tax residency in Australia, changes may be coming. In 2019, the Board of Taxation released a report which contained a proposed model for modernising individual residency. The new framework was designed to simplify the tax system and reduce compliance costs for individuals and employers. While this report is now over 4 years old, its importance is more relevant than ever.

The model proposed uses a two-step approach of primary tests and secondary tests. Apart from the government official test, which would replace the Commonwealth superannuation test, the main primary “bright line” test will be the 183-day test, in which a person who is physically present in Australia for 183 days or more in any income year would be considered an Australian tax resident. Simple!

One of the secondary tests proposed would require an individual to be physically present in Australia for a minimum of 45 days in an income year before commencing residency, or a maximum of 45 days in an income year before ceasing residency. However, due to various global factors (eg the COVID-19 pandemic), the government is seeking views on whether this 45-day threshold is still appropriate and whether there are any circumstances where days spent in Australia should be disregarded for this threshold.

In addition to the 45-day threshold, the proposed secondary test includes the factor test, which focuses on four specific types of connection an individual may have to Australia. Any individual whose circumstances meet any of the four factors will be deemed to have a stronger connection to Australian than someone who does not. The Federal Government is now soliciting public feedback on the proposed model before making a decision about whether to proceed with the changes.

The above is a much needed piece of legislation which should remove the ‘grey’ area currently surrounding a taxpayers residency. Let’s hope it doesn’t take another 4 years for it to be enacted.



Kim Jay