Understanding the Australian Tax Residency Rules as an Australian Expat
- Mitchell Kelsey
- Feb 28
- 7 min read
Understanding the Australian tax residency rules as an Australian Expat is essential to making informed decisions, planning your finances effectively, and avoiding unexpected tax obligations in Australia.
The current legislation that governs the Australian tax residency rules is the Income Tax Assessment Act 1936 (ITAA36). In recent years, there have been calls to modernise the Australian tax residency rules to bring them in line with the 21st century. In particular, the current rules do not reflect global work practices and impose an inappropriate compliance burden on many Australian Expats. This has led to increased uncertainty and disputes regarding one's tax residency status.
In this blog post, we’ll bring you up to speed on recently proposed changes to the Australian tax residency rules, what you need to know about the current legislation, and when we might expect the current rules to change in the future. The blog post will equip Australian Expats with the knowledge to better navigate the Australian tax residency rules now and moving forward.
Background
The current Australian tax residency rules are complex and often open to interpretation when applying them against your own personal circumstances as an Australian Expat. This is because they are not clear-cut, are subjective, and are designed to cover varying taxpayer situations.
Recent initiatives and publications to modernize the Australian tax residency rules have increased uncertainty for Australian Expats, as it has created confusion about whether the current rules or proposed rules are now law. It is therefore important to understand the background and history of recently proposed changes to the rules to discern from the current rules.
It is worthwhile noting from the onset of this discussion that while there have been several indications by the Government to change the current Australian tax residency rules, at the time of writing, no legislation has been passed to enact change to the current rules set out in the Income Tax Assessment Act 1936 (ITAA36).
A Timeline of Proposed Changes to the Australian Tax Residency Rules
May 2016 - The Board of Taxation (the Board), which is an advisory body that provides the Government with advice on tax policy, commenced a self-initiated review, including extensive consultation of individual tax residency.
August 2017 - The Board presented its findings to the former Government in “Review of the Income Tax Residency Rules for Individuals” (the 2017 report). This report concluded that the Australian tax residency rules are no longer appropriate and require modernisation and simplification.
May 2018 - The former Government responded to the 2017 report by asking the Board to undertake further consultation to ensure that the new rules could be appropriately designed and targeted.
September 2018 - The Board released “Review of the Income Tax Residency Rules for Individuals: Consultation Guide” (the 2018 consultation guide). The Board conducted a series of roundtable consultations and received written submissions in response to the 2018 consultation guide.
March 2019 - The Board completed its final report Reforming Individual Tax Residency Rules – a Model for Modernization.
December 2019: The Government announced the publication of the final report, noting it as a valuable contribution to public debate. The Government stated it will continue to consider the implications of the Board’s findings.
May 2021 – In the 2021-21 Federal Budget, the Government announced it is consulting on a new, modernised individual tax residency framework based on the recommendations made by the Board of Taxation in its 2019 report.
October 2022 - The Australian Taxation Office (ATO) issued a draft Taxation Ruling (TR 2022/D2), providing additional guidance in relation to applying the current Australian Tax residency rules. This draft ruling was unrelated to the Board of Taxation’s 2019 report.
June 2023 - The Australian Taxation Office (ATO) issued final Taxation Ruling TR 2023/1, following consultation on its predecessor draft ruling (TR 2022/D2). The ruling offered guidance and clarification about the current Australian tax residency rules. This final ruling was unrelated to the Board of Taxation’s 2019 report.
July 2023 – The Government released a Consultation Paper, based on the recommendations made by the Board of Taxation in its 2019 report “Reforming Individual Tax Residency Rules – a model for modernisation”. Submissions were made by interested parties before the consultation process closed on September 2023. The outcomes of the consultation were said to help inform the Government’s decision on whether to proceed with the measures.
Since the cessation of the Consultation Paper submissions in September 2023, there have been no formal announcements by the Government regarding their intentions to change the current Australian tax residency rules. Therefore, the rules set out in ITAA36, supported by TR 2023/01, remain the current rules for Australian Expats to determine tax residency status. A summary of the rules and “4 tests” used can be found below:
The Current Australian Tax Residency Rules – 4 Tests
In light of the above commentary, and there being no indication of when (or if) the current rules will be changed, Australian Expats need to understand the current Australian tax residency rules.
You are a resident for tax purposes in Australia if you meet any one (or more) of the tests below, but are a non-resident if you do not meet any of the tests. There are 4 tests to determine your residency:
1. Resides test
2. Domicile test
3. 183-day test
4. The Commonwealth superannuation test
1. Resides test:
The primary test of tax residency is called the resides test. If you reside in Australia, you're an Australian resident for tax purposes and you don't need to apply any of the other residency tests.
Under the Resides test, you are a resident of Australia if you reside in Australia according to the ordinary meaning of the word ‘reside’ – which means ‘to dwell permanently, or for a considerable time, to have a settled or usual abode, and to live in a particular place’.
Some of the factors that can be used to determine residency status include:
period of physical presence in Australia
intention or purpose of presence in Australia
behaviour while in Australia
family and business or employment ties
social and living arrangements.
Your tax residency is determined by considering all the relevant facts and circumstances above. No single factor is likely to be decisive, and many will be interrelated.
If you don't satisfy the resides test, you may still be considered an Australian resident if you satisfy one of the remaining 3 statutory tests.
2. Domicile Test
A taxpayer will be an Australian resident if their domicile (the place that is their permanent home) is in Australia, unless the ATO is satisfied that their permanent place of abode is outside Australia.
A domicile is a place that is your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).
There are no 'hard and fast' rules that can be used to determine your permanent place of abode. Some of the relevant factors include:
intended and actual length of stay overseas, including the continuity of that stay
existence of an established home overseas
existence of a residence in Australia (while overseas)
family and financial ties.
A permanent place of abode should have a degree of permanence and can be contrasted with a temporary or transitory place of abode. As set out in TR 2023/01, 2 years is considered to be a substantial period of time overseas. What this means is that if your intended length of stay is less than 2 years, you are unlikely to be able to establish that your permanent place of abode is outside of Australia.
3. 183-day Test
This test only applies to individuals arriving in Australia. You will be a resident under this test if you're actually present in Australia for more than half the income year (183 days), whether continuously or with breaks, unless it is established that your ‘usual place of abode’ is outside Australia and you have no intention of taking up residence here.
In this test, the ATO must be satisfied that your usual place of abode is outside Australia. This is different to the first test domicile test that requires the ATO to be satisfied that your permanent place of abode is outside Australia.
The phrase 'usual place of abode' should not be given the same or similar meaning as the phrase 'permanent place of abode'. The terms 'usual' and 'abode' should be given their ordinary and natural meanings.
Your place of abode does not have to be fixed but must have the attributes of a place of residence or a place to live. It can’t have the attributes of an overnight, weekly or monthly accommodation for a traveller.
4. The Commonwealth superannuation test
This test applies to Australian Government employees working at Australian posts overseas and who are members of the CSS or PSS schemes. It does not apply to members of the PSSAP scheme. If this is the case, you (and your spouse and children under 16) are a resident of Australia regardless of any other factors.
This test is now considered outdated and it has been recommended to be removed or changed in previous proposals to change the Australian Tax residency rules. Should the Government decide to make changes to the current Australian tax residency rules, this test would likely be replaced or removed altogether.
Final Thoughts:
Navigating tax residency as an Australian expat can be challenging, but it’s vital to understand the rules and make sure you're correctly classified as a resident or non-resident. While it is currently unknown when or if the Government will change the current tax residency rules, it is broadly accepted that the rules are outdated and require modernising and simplification. While there was no acknowledgment of the Consultation paper in the 2024-25 Federal Budget held in May 2024, we could see an update in March 2025 when the Labour government hands down it 2025-26 budget.
To make sure you're compliant with the current Australian tax residency rules and to avoid surprises, Australian Expats should seek professional advice from an Australian Expat Tax Accountant. They can help you understand your status and assist you in ensuring this is reflected with the Australian tax office. Australian Expats should also stay alert to any announcements to the Australian tax residency rules. By staying informed and seeking expert advice, you can ensure that you meet your obligations and can effectively navigate your tax recency status as an Australian Expat.
Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.
If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:
General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.
Useful Links:
Current Australian tax residency rules
TR 2023/01
2019 report by the Board of Taxation
2023 Consultancy Paper
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