Australian Tax Residency: The Resides Test

As an Australian expat or foreign investor living overseas, you may be wondering how your tax residency status will be affected. Determining one’s tax residency status is crucial, as it determines the extent of tax obligations in Australia. The Australian Taxation Office (ATO) uses a number of tests to determine whether you are an Australian resident for tax purposes, including the resides test.

In this article, we will delve into the resides test and explore how it plays a significant role in determining your Australian tax residency status.

What is the Resides Test?

The resides test is a crucial test employed by the ATO to determine an individual’s tax residency status in Australia. It assesses whether a person “resides” in Australia for tax purposes.

Under the resides test, it is important to consider both the physical presence and the intention to reside in Australia. The ATO examines various factors to determine if an individual resides in Australia on a permanent or long-term basis.

What are the Criteria to Pass the Resides Test?

To pass the resides test and be considered an Australian tax resident, you need to meet certain criteria. The criteria include both the physical presence in Australia and the intention to reside in the country. Here are the key factors considered in the resides test:

Physical presence: The ATO examines the actual time you spend in Australia during a tax year. Generally, if you have been present in Australia for 183 days or more in a tax year, you are likely to meet the physical presence criterion. However, the ATO also considers shorter stays and takes into account factors such as temporary absences and whether you have established a home overseas.
Intention to reside: Apart from physical presence, the ATO evaluates your intention to reside in Australia. This assessment involves considering various factors, such as family, personal, and business ties. Factors that may indicate a strong intention to reside in Australia include having a permanent home in the country, maintaining family and social connections, and holding employment or business interests in Australia.
Employment factors: If you are employed in Australia, it generally strengthens your case for passing the resides test. The ATO looks at factors such as the duration and nature of your employment in Australia, whether it is ongoing or temporary, and the level of income earned in the country.
Personal connections: The ATO considers personal ties, such as having immediate family members residing in Australia, maintaining memberships in Australian clubs or organisations, or owning property in the country.
Maintenance and location of assets: The ATO takes into account the location and management of your assets, including investments, bank accounts, and real estate. If you have significant assets in Australia, it may suggest a stronger connection to the country.

If you meet all of these criteria, then you will be considered an Australian resident for tax purposes. This means that you will be liable to pay Australian tax on your worldwide income, regardless of where you live.

Why Should I Get the Resides Test?

While the Australian Taxation Office (ATO) employs multiple tests to determine tax residency, the resides test is often considered the primary and most commonly used test. There are several reasons why the resides test may be preferred over other tests:

Broad Applicability: The resides test considers both physical presence and the intention to reside in Australia. It takes into account various factors, such as personal, family, and business ties, as well as social and living arrangements. This broader approach allows for a comprehensive assessment of an individual’s residency status and is applicable to a wide range of situations.
Flexibility: The resides test offers flexibility in considering individual circumstances. It recognizes that residency status can vary depending on factors such as employment arrangements, personal connections, and future intentions. This flexibility allows for a more nuanced evaluation and takes into account the unique circumstances of each individual.
Common Understanding: The resides test has been widely used and interpreted by tax professionals, the ATO, and the courts. It has a well-established framework and guidelines, which helps provide clarity and consistency in determining tax residency status. This common understanding reduces ambiguity and potential disputes regarding residency determinations.
Precedent and Case Law: The resides test has been extensively tested and supported by Australian court decisions. Over time, legal precedents have been established, providing a clearer framework for determining tax residency under the resides test. This can offer more certainty and reliability when assessing tax residency status.
ATO Focus: The ATO places significant emphasis on the resides test when determining tax residency status. They provide guidance and resources specifically related to the resides test, making it a key consideration in their assessments. By aligning with the ATO’s approach, individuals can ensure compliance with their requirements and reduce the risk of potential audits or disputes.

While the resides test is often the primary test used, it’s important to note that in certain circumstances, other tests, such as the domicile test or the 183-day test, may be more appropriate. Determining the most suitable test for your situation depends on your specific circumstances and individual factors.

Seeking professional advice from tax experts can help ensure that the correct test is applied in your case and increase the accuracy of your tax residency determination.

What If I Don't Pass the Resides Test?

If you don’t meet the criteria of the resides test, then you may still take the following alternative tests to be considered an Australian resident for tax purposes:

The Domicile Test: The domicile test is based on your permanent home. If your permanent home is in Australia, then you will be considered an Australian resident for tax purposes, even if you are physically present in Australia for less than 183 days during the income year.
The 183 Day Test: The 183 day test is based on the number of days you are physically present in Australia during the income year. If you are physically present in Australia for more than 183 days during the income year, then you will be considered an Australian resident for tax purposes, regardless of whether you have a permanent home in Australia or not.
The Superannuation Test: The superannuation test is a special test that applies to people who are eligible to participate in the Australian Government Superannuation Scheme (GSS). If you are eligible to participate in the GSS and you are physically present in Australia for more than 90 days during the income year, then you will be considered an Australian resident for tax purposes.

Tips for Australian Expats and Foreign Investors

If you are an Australian expat or foreign investor living overseas, there are a few things you can do to minimise your Australian tax liability:

Keep a record of your time spent in Australia. This will help you to determine whether you meet the 183 day test or the resides test.
Make sure you have a permanent home outside of Australia. This will help you to meet the domicile test.
Consider participating in the Australian Government Superannuation Scheme (GSS). This could help you to meet the superannuation test.

If you are unsure about your tax residency status, it is important to speak to a tax professional. They can help you to understand the different tests that apply to you and they can advise you on how to minimise your Australian tax liability.

Speak with Our Tax Experts for Personalized Guidance

Understanding and navigating the resides test is essential for individuals seeking clarity on their Australian tax residency status. To ensure compliance with tax obligations and make informed decisions, it is advisable to seek guidance from tax experts well-versed in Australian tax laws.

Our team of tax professionals is ready to assist you. Contact our experts today to discuss your specific circumstances and receive tailored advice regarding the resides test, your tax residency status as well as your tax obligations as Australian expats.

Contact Odin Tax today for expert guidance tailored to your unique circumstances. Don’t hesitate, make an informed decision by speaking with our experienced expat tax advisors.

Reach out now!

Frequently Asked Questions

What is the difference between the resides test and the 183 day test?

The resides test is the primary test used to determine your tax residency status. The 183 day test is an alternative test that can be used if you don’t meet the resides test.

How do I prove that I have a permanent home outside of Australia?

You can prove that you have a permanent home outside of Australia by providing evidence of things like a lease agreement, a mortgage statement, or a utility bill.

What are the benefits of participating in the Australian Government Superannuation Scheme (GSS)?

The GSS provides a number of benefits, including: