Australia: Tax residency rules for individuals

In brief

In the 2021-22 Federal Budget, the government announced changes intended to simplify the tax residency rules for individuals.


Contents

The primary test under the new rules will be a so-called "simple bright line" test under which a person who is physically present in Australia for 183 days or more in any income year (i.e., the Australian tax year ending 30 June) will be an Australian tax resident. This represents a simplified version of the 183-day test used by some of our major trading partners such as the US. Even if an individual is not physically present in Australia for 183 days or more, they may still be a tax resident under secondary tests that depend on a combination of physical presence and what are proposed to be "measurable, objective criteria."

The government is yet to release draft legislation, however the new individual tax residency rules are intended to apply from 1 July following Royal Assent.

The proposed changes will be based on the Board of Taxation's March 2019 report entitled "Reforming Individual Tax Residency Rules — A Model for Modernization." The report set out a number of tests, as follows:

  • The primary test is the 183 day test — if an individual spends 183 days or more in Australia, then they are a tax resident.
  • The secondary rules apply to individuals who are in Australia for more than 45 days but less than 183 days in an income year. The secondary tests would adopt a day-count together with a focus on four factors, two of which must be satisfied in order for that person to be deemed to be resident in Australia:
  • the right to reside permanently in Australia (e.g., citizenship or permanent residency)
  • the ability to access accommodation in Australia (e.g., rights of ownership, leasehold interests, licenses)
  • whether the individual's family (spouse or any of their children under the age of 18) are generally located in Australia
  • the individual's Australian economic connections (employment, carry on business, interests in Australian assets)

The report also included certain other proposals, such as an overseas employment rule, under which Australian tax residency would be lost where an individual is employed for a period of over two years overseas and certain other requirements are met.

A key issue to remember is that, even if an individual is tax resident of Australia under Australian law, a tie-breaker provision of a double tax agreement may result in the individual being treated as tax resident of another country during a particular income year instead.

Contact Information

Copyright © 2022 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.