Update on Individual Residency Rules for Taxpayers

In TR 2023/1, the ATO offers valuable guidance on the four residency tests and highlights the relevant factors to consider when applying each test.
The Australian Taxation Office (ATO) recently released Taxation Ruling TR 2023/1 Income tax: residency tests for individuals (TR 2023/1) on 7 June 2023. This ruling provides important insights into the residency tests for individuals as outlined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

TR 2023/1 incorporates recent developments in case law and updates the Commissioner's view on the statutory residency tests, namely the ordinary concepts test, domicile test, 183-day test, and Commonwealth superannuation test. Notably, the Commissioner's view has been influenced by recent cases such as Harding v Commissioner of Taxation [2019] FCAFC 29, Pike v Commissioner of Taxation [2019] FCA 2185, and Addy v Commissioner of Taxation[2021] HCA 34.

New and Updated Examples

New and updated examples have been included in the final ruling to address feedback received during the development of TR 2022/D2. These examples provide a broader range of scenarios that taxpayers and tax practitioners can rely on to better understand and apply the residency rules. Some notable examples are:

  • Example 2: Factors indicating when a taxpayer arriving in Australia for a secondment will be considered a resident.
  • Example 6: Factors indicating when a taxpayer has sufficiently abandoned their Australian residency while moving overseas, including short trips after     demonstrating citizenship overseas that do not result in the taxpayer becoming a resident.
  • Example 13: Factors indicating when a taxpayer arriving in Australia but unable to bring their family until a later date will be considered a resident.
  • Example 17: Factors indicating when a resident taxpayer, who had a change of intention to become a resident, will not be affected by overseas visits.

Furthermore, existing examples have been updated to provide clearer guidance on determining taxpayer residency.

Distinguishing subjective intention and objective evidence

When determining a taxpayer's permanent place of abode, TR 2022/D2 highlights the Commissioner's preliminary view that the subjective intention of the taxpayer is not decisive. The weight of subjective factors depends on the specific circumstances, with greater importance given to objective factors surrounding the taxpayer's arrival and departure.

Lastly, it is worth mentioning that the former government announced proposed reforms to the individuals tax residency rules on 11 May 2021, as part of the Federal Budget 2021–22. These reforms, based on the Board of Taxation's 2019 report, recommend a primary physical presence test, where a taxpayer would be considered a resident if they spend more than 183 days in Australia. Taxpayers failing this test would need to undertake secondary tests—commencing residency and ceasing residency tests—to determine if residency has commenced or ceased. The secondary tests rely on objective criteria to make this determination.

There has yet to be any substantial progress on the introduction of the proposed new rules at this stage.  We will continue to monitor and provide updates as and when necessary.

For more detailed information and comprehensive understanding of Australia’s tax residency laws and how they apply to your specific circumstances, please don’t hesitate to contact our office.

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