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Taxation Ruling TR 2023/1, released by the ATO on 7 June 2023, considers the key tax residency tests for individuals being the ordinary concepts, domicile and 183-day tests.
The Commissioner of Taxation has said that residency under these tests is determined by considering all relevant facts and circumstances and that no single fact is determinative.
Whilst the ruling has provided some clarity to taxpayers in light of a number of court decisions, there remains some uncertainty in the interpretation of the rules with a need for further reform.
TR 2023/1 consolidates and replaces the content in the now withdrawn Taxation Rulings IT 2650 Income Tax: residency - permanent place of abode outside Australia, IT 2681 Income Tax: residency status of business migrants and TR 98/17 Income Tax: residency status of individuals entering Australia. IT 2650 and TR 98/17 were withdrawn with effect from 6 October 2022 and IT 2681 was withdrawn from 7 June 2023.
Significant cases on residency have been decided since the release of the withdrawn rulings including but not limited to Harding v Commissioner of Taxation [2019] FCAFC 29 (Harding), Pike v Commissioner of Taxation [2019] FCA 2185 (Pike) and Addy v Commissioner of Taxation [2019] FCA 1768 (Addy). The Commissioner has taken these decisions into account in TR 2023/1. There are no changes to the draft version of TR 2022/D2 although additional examples have been added. The Ruling does not address the proposed changes to the residency tests as announced by the previous Government in the May 2021 Budget.
The 4 residency tests
TR 2023/1 explains that the definition of ‘resident’ or ‘resident of Australia’ has 4 alternative tests whereby you are a resident if you meet any one (or more) of the tests but a non-resident if you do not meet any of the tests. You have to consider all applicable tests before concluding whether or not you are a non-resident. Residency is a question of fact based on an individual’s connection to Australia. You can be a resident for tax purposes of more than one country at the same time.
In determining your residency status, you look beyond the period that has been spent in or out of Australia. Case law confirmed factors from the entire income year and surrounding income years will provide more information to assist in determining whether or not you meet one of the residency tests.
1. ORDINARY CONCEPTS TEST
The ordinary concepts test is generally relevant when you are physically present in Australia and considers residency according to ordinary concepts. The other 3 tests, being the domicile test, 183-day test and Commonwealth Superannuation Fund Test; expand on the definition beyond the ordinary concept of residency.
Under the ordinary concepts test, you are a resident of Australia if you reside in Australia and is ordinarily expressed as ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place’. This test questions whether your presence in Australia is usual and settled in contrast to temporary and casual.
Key factors to consider when assessing a taxpayers association with Australia are:
- Period of physical presence in Australia;
- Intention or purpose of presence;
- Behaviour whilst in Australia;
- Family, and business or employment ties;
- Maintenance and location of assets; and
- Social and living arrangements.
No single factor is necessarily decisive, and weight is given to each factor and varies depending on the individual circumstances.
2. DOMICILE TEST
Under the domicile test, you are an Australian resident when your domicile is in Australia, unless the Commissioner is satisfied that your permanent place of abode is outside of Australia.
A person will have their permanent place of abode overseas when they have retained their Australian identity but:
- Have abandoned their residency in Australia; and
- Commenced living permanently overseas.
The key is that the overseas residence is ‘permanent’ rather than temporary or transient.
The domicile and Commonwealth superannuation fund tests are generally relevant if you have been living in Australia but are not currently present in Australia, or present only intermittently during the relevant income year.
3. 183-DAY TEST
The 183-day test is generally relevant if you were not previously a resident and entered Australia during the income year. This test considers your length of stay in Australia, your usual place of abode and your intention to take up residency in Australia.
Under the 183-day test, you are a resident if you have been present in Australia for 183 days or more in an income year, unless the Commissioner is satisfied that both:
- Your usual place of abode is overseas; and
- You do not have an intention to take up residency in Australia.
TR 2023/1 retains the ATO’s “rule of thumb” approach that if a person intends to stay overseas for less than 2 years, they are unlikely to be able to prove that their permanent place of abode is out of Australia.
Relevant factors in considering whether your usual place of abode is outside Australia include:
- Where you lived before and after your time in Australia;
- The availability of your overseas dwelling to you (if you have one) whilst you were in Australia;
- Where your possessions and assets are;
- The type of visa you have and the length of your intended stay;
- Your purpose of coming to Australia; and
- The travel arrangements you made, including whether you departed from and returned to the same place outside Australia.
Even if the Commissioner is satisfied that your usual place of abode is outside Australia, you will still be a resident under this test unless the Commissioner is satisfied that you do not intend to take up residency in Australia. The intent to take up residency is a test concerning your future intentions to make Australia your home.
4. SUPERANNUATION FUND TEST
This test treats some Australian government employees working at Australian posts abroad (such as diplomats and officials of the Department of Foreign Affairs and Trade), and their spouses and children under 16 years old, as Australian residents. The test only applies to make resident members who are active members (that is, contributing, or are having contributions made on their behalf), to the Public Sector Superannuation Scheme (“PSS”) or the Commonwealth Superannuation Scheme (“CSS”). The PSS and CSS scheme are now closed to new members.
If you are no longer employed by the Australian Public Service, or you are engaged or appointed under an employment arrangement where superannuation contributions are made to a fund other than the PSS and CSS, then this test will not apply to make you a resident.
Temporary workers and working holiday makers
The residency tests apply in the same way to temporary workers and workings holiday makers and the entirety of a person’s facts and circumstances must be taken into account.
Our advice
The concept of residency is not always straight forward and at times can be a very complex. TR 2023/1 lists a number of examples that may be similar to residency scenarios people encounter however despite the facts being similar, it does not mean the outcome will be the same. Overall, differences in intention, motivation and personal circumstances may produce different outcomes.
The Ruling does not address the proposed changes to the residency test which was announced by the previous Government in the May 2021 Budget. The Legislation and TR 2023/1 have subjective elements requiring the Commissioner to be “satisfied” on certain points. The May 2021 Budget announcement sought to modernise the individual residency rules taking elements from the Board of Taxations 2017 review, including the “bright line” primary test if a person was physically present in Australia for more than 183 days. We haven’t heard any further development on this from the current Government so the updated guidance in TR 2023/1 is all we have.
For more information
If you would like to discuss how the TR 2023/1 will impact you, please contact your local RSM team to discuss how the residency tests can be applied to you.
