In line with the Board of Taxations’ recommendations in the 2019 report to Government “Reforming individual tax residency rules — a model for modernisation“, the Federal Government confirmed in the 2021 Budget announcement last night that it will be replacing the individual tax residency rules with a simplified and modernised framework.
The new model will provide a two-step approach:
- The primary test – a simple 183-day ‘bright line test’; and
- The secondary test – a combination of other tests.
Individuals will satisfy the primary test and be deemed an Australian tax resident where they have been physically present in Australia for 183 days or more in an income year. Those individuals that do not satisfy the primary test will be subject to the secondary test.
The secondary test examines a combination of an individual’s physical presence in Australia along with a four prong objective factors test, which assesses an individual’s connection which Australia by considering their:
- Right to reside in Australia;
- Australian accommodation;
- Australian family; and
- Australian economic connections.
This modernised framework is a welcomed move away from the current tax residency rules which have been mostly unchanged for 100 years. This new and simple model for Australian tax residency will provide greater certainty and minimise compliance costs for Australians moving overseas, mobile workers and employees overseas.