ATO publishes ruling on final residency test for individuals

Thursday, 15 June 2023
The Australian Tax Office (ATO) has published the final version of Tax Ruling 2023/1 setting out its view on the tax residency test for individuals, based on the draft released for consultation in October 2022.
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It replaces and consolidates three prior ATO rulings, following high-profile Federal Court of Australia appeal judgments in the cases of Harding (2019), Pike (2020) and the 'backpacker tax' case of Addy (2020). The prior rulings were IT 2650, regarding permanent place of abode outside Australia; TR 98/17, regarding residency status of individuals entering Australia; and IT 2681, regarding residency status of business migrants. All three have been withdrawn.

The newly revised test contains no 'bright-line rules' nor any single 'paramount' factor. Under the concepts, domicile and day-counting tests, residency is determined by considering all relevant facts and circumstances and is a question of fact based on an individual's connection to Australia.

However, as no single fact is determinative, ‘there remains significant uncertainty’, says law firm Minter Ellison. The definition has four alternative tests whereby individuals are classed as resident if they meet any one or more of the tests. They are classed as non-resident only if they do not meet any of the tests. All applicable tests therefore have to be considered before concluding whether an individual is non-resident.

Key factors to consider when assessing a person's association with Australia include: the period of their physical presence in Australia, the intention or purpose of their presence, their behaviour while in Australia, their family and business ties, the maintenance and location of their assets and their social and living arrangements. The ATO will also take into account the ‘nature, duration and quality of a person's physical presence in Australia and their intention to treat Australia as home’.

The day-counting test is generally relevant if the individual was not previously a resident and entered Australia during the income year. It states that a person present in Australia for 183 days or more in an income year is resident unless the ATO is satisfied that their usual place of abode is overseas and they do not have an intention to take up residency in Australia. The new ruling retains the ATO's ‘rule of thumb’ approach that if a person intends to stay overseas for less than two years, they are unlikely to be able to prove that their permanent place of abode is out of Australia.

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