Many people who do not reside solely in Australia – for example those with families overseas, those who have to travel overseas frequently for work, or foreign students enrolled in Australian education – are unsure about their residency for tax purposes.

 

Most people are aware that Australian residents must pay tax.  However, many do not know the extent by which non-Australian citizens who reside in Australia – or Australian citizens who reside overseas – are subject to Australian Tax Law.

 

What can be confusing is that the ATO does not use the same rules or conditions as the Department of Home Affairs (which now subsumes the Department of Immigration and Border Protection) to determine ‘residency’.  It is possible to be an Australian resident for tax purposes without being an Australian citizen or an Australian permanent resident; and it is frequently possible that people may have a visa to enter Australia but will not be an Australian resident for tax purposes.

 

Complicating the matter is the fact that every case is essentially decided on the Commissioner’s discretion.  While checklists do exist, they are not ‘hard-and-fast’ rules and there is a great deal of uncertainty with every ruling.

 

The actual ‘test’ in the Tax legislation is deceptively simple: An individual who ‘resides’ in Australia is a tax resident.  Resides takes its ordinary dictionary meaning.

 

reside

re·​side | \ ri-ˈzīd \

resided; residing

 

 

Definition of reside

intransitive verb

1a : to be in residence as the incumbent of a benefice or office

b : to dwell permanently or continuously : occupy a place as one’s legal domicile

 

As such, most people with a permanent Australian abode would be a tax resident under domestic tax law.  But not always – The actual test is more complicated when a person does not solely reside in Australia.  In such a case, the ATO considers whether the person has retained a ‘continuity of assocation’ with Australia and has ‘an intention to return to that place and an attitude that that place remains home’.

 

Example

 

In practice, that means that a person who owns residential property in Australia, and who has a family who resides in Australia, may not be a resident for tax purposes.  A recent example occurred in the case of Harding v Commissioner of Taxation [2019] FCAFC 2.

 

In this case, Mr Harding departed Australia to live in Bahrain.  He owned property in Queensland which his wife and children continued to live in.  The ATO initially ruled that this was sufficient connection with Australia for Mr Harding to be ruled a resident for tax purposes.

 

However, the Court concluded that Mr Harding did not reside in Australia based on the ordinary meaning of the word ‘resides’. This is because it was Mr Harding made it clear that his intention was to move permanently to Bahrain.  Mr Harding no longer considered his Australian property ‘home’ and was in the process of making plans for his wife and children to join him in Bahrain once their second son finished high school.

 

The Harding case was also an example of the ATO’s usual checklists giving a wrong result.  Based on the factors they considered the ATO drew a conclusion that on the balance Mr Harding was a resident for tax purposes – a conclusion that the Courts disagreed with once they analysed the legislation.

 

Multiple tax residency?

 

Based on the factors considered it is possible to be a tax resident of multiple countries at once – especially depending on the laws of the other country.  If you spend notable amounts of time in multiple countries it may be worth checking if Australia has a tax treaty or ‘double tax agreement’ with the other country.  These agreements are intended to prevent double taxation between multiple tax jurisdictions.  The full list of treaties is maintained on the Australian treasury website.

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