Most individuals would think that their tax residency status is the same as their residency status for other purposes, however, in some cases, it is completely different, and determining your tax residency status to prevent any tax consequences arising entails navigating complex legislation and appropriately applying that legislation to your factual circumstances. It is critical to determine your tax residency status to understand the jurisdiction in which any type of income and/or gains you generate may be subject to tax to effectively plan your tax strategy and whether any of that generated income and/or gains are taxable in Australia, so you are not impacted by tax consequences.

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Who Should be Required to Determine their Tax Residency Status

In most cases, it is recommended to determine your tax residency status if you are, or have been, in the following situations, including:

1. An individual leaving or has already left Australia;

2. An individual returning to moving to Australia;

3. An individual working on a Yacht/Boat; or

4. A Resident Return Visa Holder.

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It is important to obtain comprehensive independent legal advice to determine your tax residency status considering your factual circumstances, so you understand in which jurisdiction your tax obligations arise and whether you have any tax obligations in Australia.

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What is an Australian Resident for Tax Purposes

The Australian Taxation Office (ATO) has established four tests that assist in determining whether you are an Australian tax resident. These are:

Resides Test

The resides test is applied simply that if you reside in Australia, meaning that your permanent home is in Australia, then you will most likely be classified an Australian tax resident. The resides test is applied depending on your factual circumstances and the ATO would typically take into account any or all of the following factors, including:

• period of physical presence in Australia;

• intention or purpose of presence;

• behaviour while in Australia;

• family and business or employment ties;

• maintenance and location of assets; and

• social and living arrangements.

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The ATO will also consider the behaviour you display over a period of time when determining your tax residency status, including:

• a degree of continuity;

• routine; and

• habit.

 

Domicile Test

The domicile test is the most complex test to navigate and apply to your factual circumstances out of these four tests. Essentially, Australia would classify you as an Australian tax resident, unless the ATO is satisfied that your ‘permanent place of abode’ is outside Australia. Your domicile is the place that is:

• considered by law to be your permanent home; and

• usually something more than a residence.

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There are 3 basic types of domicile, including:

• Domicile by Origin, which is attributed to everyone at birth.

• Domicile by Choice, which is applied if there is both a change of residence and an intention of making the chance permanently, or at least indefinitely.

• Domicile by Operation of Law, which is imposed by law.

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‘Permanent Place of Abode’ is defined through common law as:

• permanent does not have the meaning of everlasting or forever, but is used in the sense of being contrasted with temporary or transitory; and

• your place of abode is your residence, where you live with your family and sleep at night.

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The domicile test is applied depending on your factual circumstances and the ATO would typically take into account any or all of the following factors, including:

• intended and actual length of stay overseas, including continuity of that stay;

• existence of an established home overseas;

• existence of a residence in Australia (while overseas); and

• family and financial ties.

 

183-Day Test

The 183-day test is the simplest of the four tests to be applied to your factual circumstances, however, it still may have some complexities when attempting to relate it to your factual circumstances. The ATO would likely classify you an Australian tax resident under this test if you are present in Australia for more than half of the income year (183 days), whether continuously or with breaks. The only exception to this test is if you can establish that your ‘usual place of abode’ is outside Australia and you have no intention of taking up residence in Australia.

 

Commonwealth Superannuation Test

The commonwealth superannuation test applies strictly to Australian Government employees who work at Australian posts in foreign jurisdictions and are also members of the CSS or PSS schemes. This test is strict in the fact that, if it applies to your factual circumstances, you would likely be classified an Australian tax resident regardless of any other factors.

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Other Types of Tax Residency Status’

Temporary Residents

You would likely be classified a temporary resident by the ATO if you are a temporary visa holder, such as a 457 Visa. As a temporary resident, you would only be required to pay tax on income that you generate from employment in Australia.

 

Non-Residents

You would likely fulfil the non-residency status if you are temporarily living in Australia for a short period of time, for example, if you arrive in Australia for a short-term employment contract or holiday and undertake casual employment. As a non-resident, you would only be required to pay tax on income that you generate from employment in Australia. The amount of tax you pay on income generated in Australia as a non-resident differs from that of a resident.

 

Working Holiday

You would likely be classified on a working holiday by the ATO if you are a working holiday visa holder, such as a 417 Visa or 462 Visa. On a working holiday, you would only be required to pay tax on income that you generate from employment in Australia. The amount of tax you pay on income generated in Australia on a working holiday differs from that of a resident.

 

Regardless of all the considerations mentioned above, determining your tax residency status is primarily dependent on your factual circumstances which can give rise to many complexities, so it is critical to engage an Australian tax lawyer to assist you in determining your tax residency status.

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How We Can Help

Adria Law are experts in assisting individuals in determining their tax residency status and collaborate closely with you to provide you with tailored and comprehensive independent legal advice so that you can effectively plan a tax strategy and mitigate any tax consequences. We provide this service while maintaining our key characteristics of quality, accessibility and affordability, implementing fixed-fee pricing.

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If you are an individual who requires assistance in determining your tax residency status, contact our experienced lawyers today for a free consultation.