Tax residency for individuals – the resides test

In my last post I introduced the concept of residence for tax purposes and explained that Australia has four tests to decide whether or not someone is a resident. In this post I will explain how the first of those four tests – the resides test – operates.

This test asks if you reside in Australia. ‘Resides’ is not defined anywhere in the tax legislation and so the term takes on its ordinary, dictionary meaning. The Shorter Oxford English Dictionary defines it to mean ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place’.

Various cases such as Federal Commissioner or Taxation v Levene, Federal Commissioner of Taxation v Miler and more recently Iyengar v Commissioner of Taxation have considered just what it means to reside somewhere. While each case is decided on its merits and unique set of facts, certain important factors can be gleaned from them.

The Commissioner, in Tax Ruling 98/17, has outlined his view and which factors he considers to be important. This Tax Ruling is very important as it applies to most individuals entering Australia. There is also another tax ruling, IT 2681, that has a more specific application to business migrants (people who come to Australia under a business visa) and the factors in this ruling are very similar to TR 98/17.

Importantly, TR 98/17 states that if you come to live in Australia for less than six months, you will, in most cases, not be considered to reside here under this first test. However, if you come for more than six months (whether or not you intended for your trip to be that long when you first arrived), the Commissioner will look at your behaviour to see whether it is consistent with residing here. He will look at your day to day behaviour over your time spent in Australia, compare it to your behaviour before you enter Australia, and see if it reflects a degree of continuity, routine or habit that is consistent with residing here.

The ruling lists the following factors as relevant;

Intention or purpose of presence – a settled purpose such as employment or education may be taken as evidence of an intention to reside in Australia.

Family and business/employment ties – whether or not your family has joined you can be a very significant factor.

Social and living arrangements – have you joined a sporting club or community organisation? Have you redirected mail to Australia, enrolled your children in school or committed to a residential lease? All these things would suggest that you are a resident.

Maintenance and location of assets – if you’ve bought a home or a motor vehicle, or if you have opened a bank account in Australia, it would add weight to the conclusion that you are a resident.

Period of physical presence in Australia – as stated earlier, the Commissioner considers six months to be a considerable time in Australia. As a general rule, he will treat overseas students studying in Australia as residents if the course of study extends beyond 6 months. However, I must stress that whilst time in Australia is an important factor, it is not decisive. The ruling gives numerous examples of people who came to Australia for more than 6 months and were not considered to be residents.

A person needs only to pass one of the four tests to be considered a resident. Therefore if the resides test is passed there is no need for you to consider the other three statutory tests. However, if you aren’t a resident under the common law resides test you must consider these other statutory tests. One of these tests – the domicile test – is the subject of my next post so stay tuned.

Cheers,

Simon

 

All advice in this blog is of a general nature. I’ve done my best to make sure it is accurate but I give no guarantees. Make sure you seek professional advice that is specific to your situation.

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