Modernising individual tax residency framework – ATO’s new guidance

The ATO has finalised a tax ruling which provides additional relevant guidance on the statutory residency tests for individuals and how the Commissioner may apply them under s 6(1) of ITAA 1936.

Taxation Ruling TR 2023/1 focuses on modernised ways of working, relevance of business or employment ties overseas and whether work duties can be performed from anywhere in the world.

Resident tax rates may be applied for individuals even where they are a tax resident in Australia for only a single day with the tax-free threshold pro-rated over the period of residency in an income year.

Modernised approach

The key points below have been highlighted by the Taxation Ruling TR 2023/1, forming a more contemporary and relevant approach to determining residency:

Ordinary concepts test

Working arrangements have become increasingly flexible after COVID-19. The tax ruling explains the Commissioner’s view that business or employment ties overseas may be less significant if the business or employment can be, and is, performed anywhere in the world.

In an increasingly connected and flexible global working environment, expanding the ordinary concepts test to include these factors becomes vital when assessing an individual’s residency.

Domicile test

Where an individual intends to stay in a tax jurisdiction for more than 2 years, the facts and circumstances of an individual will outweigh the length of time they spend overseas and become determinative factors in forming a view on their residency.

Returning to Australia for cultural events, family events and annual leave should not affect the domicile of an individual who had previously left Australia for an unspecified and substantial period and created a home overseas, even if the individual may at some point intend to return to Australia.

TR 2023/1 interprets the decision in the Harding v Federal Commissioner of Taxation (2019) 109 ATR 579 case and extends the meaning of “place of abode” as physical surroundings, extending to a town or country rather than a specific dwelling.

Part-year residency

The tax ruling states that if an individual is a resident under the ordinary concepts test, domicile test or 183-day test, and only spends part of the income year in Australia, they are not necessarily a resident for the entire income year. The commencement and cessation of residency depends on their facts and circumstances.

Tell us your circumstances

There is no straightforward way of determining your residency. Various facts circumstances come into play to form a determinative view on residency which is satisfactory as per the Commissioner. While the new tax ruling provides guidance by providing a number of examples, but similar facts do not necessarily mean same outcomes. It is therefore of high importance that each case is carefully examined based on intention, motivation, personal circumstances.

We can guide you through any residency queries that you may have based on your current or future circumstances. Please do not hesitate to contact us.

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