In order to have clarity on your tax responsibilities in Australia, the first step is to determine whether you are considered a resident or non-resident for Australian tax purposes.
This may appear crystal clear if you are working outside Australia, are hardly in Australia, or you do not have a permanent home in Australia. However, there is a chance that you are not exempt from Australian taxation laws even though you think you are.
Determining whether you are a tax resident in Australia involves more than the commonly known 183-day test. There are a few other tests.
The primary test of tax residency is called the ‘resides test‘. If you reside in Australia, you are considered an Australian resident for tax purposes and don’t need to apply any of the other residency tests.
The ‘resides test‘ may involve ATO taking into account any or all of the following factors in determining where you reside:
- intention or purpose of presence
- family and business/employment ties
- maintenance and location of assets
- social and living arrangements.
If you don’t satisfy the resides test, you’ll still be considered an Australian resident if you satisfy one of three statutory tests.
1. The domicile test: You’re an Australian resident if your domicile (broadly, the place that is your permanent home) is in Australia, unless we are satisfied that your permanent place of abode is outside Australia.
2. The 183-day test: If you’re actually present in Australia for more than half the income year, whether continuously or with breaks, you may be said to have a constructive residence in Australia, unless it can be established that your usual place of abode is outside Australia and you have no intention of taking up residence here.
3. The superannuation test: This test ensures that Australian government employees working at Australian posts overseas are treated as Australian residents.
The reason why residency for tax purposes is complex is because there is not one single defining factor that confirms your status. The ATO looks at a number of factors in your circumstance to define your status. Your citizenship may have nothing to do with your tax responsibilities. Even if you are a citizen of another country, you can be considered a resident of Australia for tax purposes, depending on your activities.
For example, you can be considered a resident if you:
- Perform your day to day activities, especially those of a leisurely kind, in Australia, even if you are moving often without a permanent residence.
- Have a business, assets, or a family in Australia, even if you stay elsewhere.
- Have the intention to stay in Australia as soon as you arrive.
Why Does All This Matter?
This is where it seems that a Malaysian tycoon ended up in a quandary. ATO deems him to be tax resident simply because his wife and children lived in Australia, while he believes he is not because he lives in Australia for only short periods and below the 183-day threshold per year. (The case was still ongoing as of the date that this blog post was written.)
The Star News Article:
Disclaimer: This blog post has been simplified to cover the common scenarios. This should not be construed as advice from Glint Accountants. There are many other factors to be considered and each case is unique. Therefore, we encourage readers of this blog post to contact Glint Accountants for assistance with their specific circumstances. For peace of mind, we encourage clients to apply for Private Rulings with ATO.
Geraldine Lee is a Chartered Accountant in Singapore and a Fellow of CPA Australia. She is well-versed in the complexities of Australian taxation laws and how they apply to those living in Singapore. Contact us at Glint Accountants for assistance if you are unsure about your residency status, or you’re concerned about possible Australian taxes on income from employment and investments overseas.