The concept of tax residency is pivotal in determining an individual’s tax obligations in Australia. The Australian Taxation Office (ATO) issued Taxation Ruling TR 2023/1 on 7 June 2023, offering updated guidance on tax residency rules for individuals.
This article delves into the ‘resides test’ for tax residency, examining its application through various case laws and the new ruling. This is one of four tax residency tests.
The Resides Test in Australian Tax Law
The first test for an individual to be considered a “resident of Australia” for tax purposes is if they “reside in Australia” within the ordinary meaning of the term. The term “resides” was interpreted in the landmark case of FC of T v Miller to have its ordinary dictionary meaning and the definition from UK case Levene v Inland Revenue Commissioners further clarifies this, stating that to ‘reside’ means:
- To dwell permanently or for a considerable time,
- To have one’s settled or usual abode, or
- To live in or at a particular place.
This interpretation was reiterated in Dempsey v FC of T, emphasizing that the term should not be given an overly broad interpretation contrary to its ordinary meaning. It just means, does the person “reside” in Australia.
Factors Influencing Residency Determination
While residency is a matter of fact and degree, several factors are considered in TR 2023/1 and in cases in determining whether a person ‘resides’ in Australia:
- Physical Presence: Time spent in the country during the income year.
- Nationality: Generally irrelevant, except in specific cases like FC of T v Pike 2020, where it played a decisive role under the Australia–Thailand double tax agreement.
- Residence History and Movements: The individual’s past residency and travel patterns.
- Behaviour and Habits: Lifestyle and routine activities.
- Frequency and Duration of Visits: The regularity and length of stays in Australia or other countries.
- Purpose or Intention of Travel: Reasons behind the individual’s travels.
- Family and Business Ties: Connections in a particular country.
- Place of Abode: Whether a residence is maintained or available in the country.
None is determinative on its own and all factors should be weighted depending on the circumstances. Only experienced tax professionals can do this and ATO private rulings should be sought where it is critical to have certainty.
Taxation Ruling TR 2023/1: An Updated Perspective
TR 2023/1 replaces previous rulings and incorporates recent court decisions. It asserts that no single factor or ‘bright-line rule’ is paramount in determining residency. The ruling specifically addresses:
- Temporary Workers and Working Holiday Makers: Usually not residents due to the brief nature of their stay. A more durable connection to Australia, like obtaining sponsorship and a temporary activity visa, is required for residency.
- Part-Year Residency: Offering guidance on when individuals are considered residents for part of a year.
- Exclusions: The ruling does not extensively cover dual residency, double tax agreements, temporary residency, or corporate residency.
Conclusion
Taxation Ruling TR 2023/1 underscores the complexity of determining tax residency in Australia. It highlights the need for a comprehensive evaluation of various factors, emphasizing that residency is a matter of fact and degree rather than strict rules. Individuals must carefully assess their circumstances against these criteria to understand their tax obligations in Australia.
This material is produced by Cadena Legal, an NSW-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Contact us here for advice.
