Tax residency attracts review

The rules for determining an individual’s tax residency have remained largely unchanged since being enacted in 1930. It’s now the subject of a government review.

With the changing global workforce and a rise in the number of cases surrounding an individual’s residency, the Board of Taxation undertook a review in August 2017 and found that the current rules require both modernisation and simplification.

During its initial consultation, the Board considered principles such as current global work practices, providing certainty to individuals of their tax residency status, and removing antiquated concepts such as domicile.

The Board recommended the current definition of resident be replaced to include a policy statement that outlines the government’s overarching individual tax policy objectives of equity, efficiency, simplicity and integrity.

Among a number of other observations by the Board, it noted that the ATO increase its compliance efforts in relation to assets that are deemed to remain taxable Australian property when an individual ceases to be an Australian tax resident.

The Board also suggests such assets be catalogued and reported to the ATO to use as a reference point for tracking future disposals of such assets for CGT purposes.

In its Consultation Guide released in September 2018, the Board sought to consult on the eight core design features identified in its 2017 report.

The Board’s preferred design includes a primary test that provides a bright line for most individuals to be able to conclusively determine their residency status.

Until conclusive determinations are made, we continue to rely on both established case law and ATO rulings in determining an individual’s tax residency.