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The Tax Office has revealed a proportion of private group taxpayers were found to be incorrectly lodging as non-residents instead of lodging as residents.
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ATO to home in on incorrect tax residency claims
12 December 2024
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A small proportion of private group taxpayers lodge their tax returns as non-residents for tax purposes, however ATO data has suggested many of these could be residents, and therefore subject to tax risks.
The ATO warned this would present problems on a tax front as determining tax residency was essential in order to determine how an individual or entity was taxed in Australia.
“Due to the increasing globalisation of business and the global mobility of individuals, tax residency is a key risk in the privately owned and wealthy group market,” the Tax Office said.
“Incorrect residency disclosures may lead to other tax risks, which may present for the taxpayers and their wider group.”
It was also noted that additional risks may arise based on a change in an individual or entity’s tax residency status.
Taxpayers were reminded that it was essential to correctly determine and assess their tax residency as individual tax residency, or corporate tax residency.
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In terms of individual tax residency, there were usually two scenarios where individuals had incorrectly self-assessed themselves as non-residents.
Those being individuals who remained Australian residents while overseas and change of residency status for individuals who had entered Australia.
“Individuals who are long-term Australian tax residents lodge as non-residents for income tax purposes while staying overseas, yet their facts don’t sufficiently demonstrate the cessation of their Australian tax residency,” the ATO said.
“For those entering Australia, we see individuals who visit and remain in Australia continue to lodge as non-residents despite their facts and circumstances demonstrating they’re Australian tax residents.”
In terms of corporate tax residency, a company is a resident of Australia if it was either incorporated in Australia or it carried on business in Australia, even if not incorporated in Australia. Other considerations would include central management and control within Australia and voting power controlled by shareholders who are residents of Australia.
The ATO reminded taxpayers it had tax rulings and guidelines that helped determine individual and corporate residency.
These rulings and guidelines included, taxation ruling TR 2023/1, taxation ruling TR 2018/5, practical compliance guideline PCG 2018/9, tax residency and working out your residency.
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