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Australia set to change tax residence rules

In its new federal budget, the Australian government has proposed changes to existing rules related to tax residency in Australia.

Presently, an Australian resident may be taxed in Australia on their worldwide income and capital gains. Conversely, a foreign resident (or nonresident) is taxable in Australia only on Australian-source income and gains from selling “taxable Australian property” such as Australian real estate.

The existing rules have been the norm in Australia for more than 80 years and are based on legal concepts such as “domicile” and “permanent place of abode.”

The proposals, which are based on recommendations by the Board of Taxation in its 2019 report “Reforming Individual Tax Residency Rules – A Model For Modernisation,” are expected to comprise:

  • A primary “bright line” test whereby a person will be tax resident if they are physically present in Australia for 183 days or more in an income year; and
  • In other cases, a secondary test will apply, using a combination of:
    • Physical presence (for example, being in Australia in an income year for 45 days or more, or overseas employment for up to two years); and
    • Measurable objective “factors” (having a right to reside permanently in Australia, close family being generally located in Australia, having available Australian accommodation, and/or Australian economic interests).

These changes are designed to simplify and clarify the rules for determining whether an individual is taxed as a resident on worldwide income, or as a foreign resident taxed on only Australian-source income and gains from taxable Australian property.

Although simplification may help in determining tax status, the issue will be what are the specifics to the bright line test and the measureable objective “factors”.  Moreover, Australians HNWIs may find themselves being forced to redomicile to other jurisdictions such as Portugal under that country’s non-habitual tax regime and Golden Visa program.


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