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Amanda Guruge, October 25 2021

Are you an Australian Tax Resident? – Residency Basics and Complications added by COVID-19

Despite the Budget 2022 announcements made in May 2021, it is important that taxpayers consider their residency circumstances based on the current legislation. With international borders re-opening for those in Australia, it is also vital to consider the impact of residency tests on those who are in Australia due to COVID.  

What are the current residency tests?

You only need to meet one of the four tests to be considered an Australian Tax Resident. The four residency tests in Australia are:

1. Resides Test 

2. Domicile or Permanent Place of Abode Test

3. 183-day Test

4. Commonwealth Superannuation Test

Resides Test

The ‘Resides Test’ looks at where you ordinarily reside, focusing on where you live or dwell permanently.

 Domicile or Permanent Place of Abode

The Domicile refers to origin, choice or the operation of law. Everyone has a domicile by origin, that is attributed at birth. A domicile by choice is attributed to a person, where the person changes their residence, usually occurring at the time of obtaining new citizenship in another country. The final method is domicile by operation of law, which generally applies to children and by way of marriage. 

As it can be difficult to show that your Domicile of choice has changed, the second limb of this test is the ‘Permanent Place of Abode’. ‘Permanent’ refers to a place the person lives that is not merely temporary or transitory. The Hart case established the concept that the ‘permanent place of abode’ did not only refer to a specific dwelling, but rather the town or city that the person lives. 

183-day Test

The third test is one of the most misunderstood tests. Most people would say that if you are outside Australia for more than 183 days, then you aren’t a resident -this assumption is wrong. The 183 days test is an in-bound test, looking at travellers coming into Australia, and not the other way. This means that an Australian who is overseas for any period of time can still be considered an Australian Tax Resident. 

An exception to this test is where the person can prove that their usual place of abode is outside Australia and that the person did not intend to take up residence in Australia. 

 Commonwealth Superannuation Test

The final test is the Commonwealth Superannuation Test. This applies to contributing members of the Commonwealth Superannuation Scheme (‘CSS’) or Public Sector Superannuation scheme (‘PSS’). The key fact is that the person must be a contributing member to the superannuation scheme, not just a member of or pensioner under the superannuation scheme. 

This may apply to employees of the Commonwealth, spouses of an employee and their children. 

 Is that where the tests stop?

Australia has double taxation agreements (‘DTA’) with more than 40 jurisdictions. Generally, the DTA have an Article on Residency, and where a person is found to be resident in both jurisdictions, there will be a ‘tie-breaker test’ based on your specific facts and circumstances. As a result, in determining your residency where a DTA may apply, you need to consider those DTA tests beyond just the application of the Australian legislation. 

I’m stuck in Australia due to COVID – am I an Australian tax resident?

The ATO’s guidance on change of tax residency as a result of COVID indicates that a person will not become an Australian tax resident where you are able to show you usually live overseas and intend to return as soon as you are able to do so.  

The ATO states that residency may change if the person is in Australia for a lengthy period and doesn’t plan to or return to their previous country of residency when they are able to do so.  

The guidance is not clear on ‘as soon as you are able’ and ‘when they are able to do’, and whether that means that you need to keep applying for an exemption to leave Australia, or it is when you are able to afford a plane ticket out of Australia.

This guidance was last updated in August 2021 and indicates that a person’s residency in Australia may greatly be affected by their individual circumstances. With international borders re-opening (and hopefully flights resuming with tickets much cheaper than they were during the height of COVID), those who stay beyond the locked down periods may have problems from the 2022 income year onwards.

How can Tax Controversy Partners help you?

Firstly, it is important that you carefully consider your position as early as possible if you are in-bound or out-bound to Australia. An unexpected taxation debt arising as a result of being considered an Australian tax resident can be devastating. 

Obtaining legal advice before it is too late is important. As expert tax lawyers with great experience with residency issues, we can provide you with detailed advice on your circumstances, guide you through making the best choices for you and help you to manage any engagement with the ATO.  

At Tax Controversy Partners, our experienced lawyers can represent your best interests in providing advice that is compliant with the current case law and legislation and based on our understanding of likely ATO actions. 

Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.

Written by

Amanda Guruge


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