Sep 18, 2023 Matthew Hung

The proposed ‘bright line’ individual residency tests

Treasury has released a consultation paper on the long awaited proposed reforms to the individual residency rules. The primary aim of the reforms is to make it much easier to determine whether an individual is a resident of Australia for tax purposes compared with the current position.

The proposed model adopts the following two-step approach

Step 1 – Primary Tests

The 183-day Test: The primary test would be a simple ‘bright line’ test – a person who is physically present in Australia for 183 days or more in any income year would be an Australian tax resident

The Government Officials Test: This test would replace the outdated Commonwealth superannuation test. It would ensure that government (including federal, state and territory) officials deployed overseas in the service of an Australian government are tax residents throughout their deployment.

Step 2 – Secondary Test

The secondary tests are relevant if an individual is not a resident under the primary tests and apply differently depending on whether they were a resident in the previous income year and if so, how long they have been a resident of Australia. A 45 day threshold is used in connection with the secondary tests.

There is still no guarantee that the rules will be updated. Treasury has indicated that this process will help the Government determine whether to update the rules and whether the changes should be consistent with the Board of Taxation recommendations and the Budget announcement made in May 2021.