Experts have weighed in on what a revised tax residency ruling might look like, with Arnold Bloch Leibler partner Clint Harding saying the current definition of residency is broken to the point where it would be easier to “convince the ATO that you have been dead for a year and have miraculously come back to life than to convince them you have ceased to be tax resident for that period.”
Speaking at the Tax Institute and the Australian Tax Research Foundation 2017 forum, Mr Harding argued that there was a need for a simplified system to help Australia be seen as a desirable destination to establish a business or to live.
“It's ridiculous, how many of you out there know that you may have three different abodes?”, asked Mr Harding.
“When might your habitual abode be the same as your usual place of abode and when might those abodes together be somewhere other than your permanent place of abode?
“I don't think there are too many tax practitioners who can explain all of those concepts in plain English let alone requiring people to do a self-assessment.”
He urged for a look into a simple day counting test where if you spend 183 days or more in Australia in any 12-month period, you would be considered a resident for tax purposes.
Mr Harding added that this should extend to 280 days in any 24-month period or 300 days in any 36-month period.
However, University of Sydney professor of taxation Dr Michael Dirkis warned against advocating for simple solutions, adding that “a complex rule or policy remains complex no matter how expressed”.
Instead, he urged for a fundamental policy rethink and examine if the origins of the policy were still relevant going forward.
If change was required, Dr Dirkis suggested four changes including Mr Harding’s suggestion of the 183-day test.
His suggestions include making the tests self-assessing, consistent with the modern operation of the assessment acts by removing words such as ‘the Commissioner is satisfied’.
To alter the so called ‘domicile’ test in para 6(a)(i) of the definition to ensure that residency will only be extinguished when the ‘permanent place of abode outside Australia’ gives rise to tax residency outside Australia.
And lastly, to remove the superannuation test in para 6(a)(ii) of the definition as it no longer meets the policy objective of its introduction and is outdated and discriminatory.
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