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The Board of Taxation has released its preferred model for simplifying and modernising the current individual tax residency rules, based on a basic 183-day test.
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New individual residency rules put forward by Board of Taxation
02 January 2020
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The government has finally released the Board of Taxation’s proposed new individual residency rules after it was completed and delivered to the Treasurer in March 2019.
The board’s proposed residency rules call for a two-step approach, with the first being a 183-day test - where an individual who spends 183 days or more in Australia is a tax resident.
The secondary rules will apply for individuals who are not in Australia for 183 days, with a commencing residency test and a ceasing residency test to determine residency.
These secondary rules adopt a day-count test together with a new factor test – four objective factors that the board, through consultation, has concluded best demonstrate an individual’s connection to Australia.
The four factors include the right to reside in Australia, Australian accommodation, Australian family, and Australian economic connections.
According to the board, when an individual is required to apply the factor test, and satisfies any two of the factors, the individual will be a resident under the factor test.
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For Australian expatriates who have been seconded to work overseas, an overseas employment rule will apply, and an individual will cease residency where an overseas employment engagement is for more than two years; and accommodation is available in the place of employment for the duration of the engagement; and return to Australia for less than 45 days in each income year.
“The proposed rules address heightened uncertainty, reduce compliance costs and protect Australia’s tax base by reducing opportunities for manipulation,” said the Board of Taxation.
“Residency is a foundational concept upon which every individual must determine their tax affairs.
“Given the current state of affairs, the board considers that the case for prioritising this reform is compelling, and that these proposed rules provide a roadmap to modernisation.”
The latest proposal comes after the government refrained from taking a position on an earlier report, instead calling for the Board of Taxation to conduct further consultation on its key recommendations.
The government has yet to release its official response.
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