Do you know if you are a resident of Australia for tax purposes? This question may seem simple, but the answer can be tricky. Your tax residency status affects how much tax you have to pay and what deductions you can claim.
However, the rules for determining tax residency are not always clear or consistent, as a recent Federal Court decision shows. In this article, we will look at the case of Mr Quy, who moved to Dubai for work and claimed he was not a resident of Australia. The court found that the tribunal that reviewed his case had made some mistakes and sent it back for another hearing.
The residency tests
There are 4 tests for determining whether you are a resident of Australia for tax purposes. You only need to satisfy one of them to be a resident. The tests are:
- The ordinary concepts test: This test looks at the ordinary meaning of the word “residence”. It considers things like how often you are in Australia, why you are here, how long you stay, and what ties you have with Australia. For example, if you live and work in Australia, have a house and a family here, and intend to stay here indefinitely, you are likely to be a resident under this test.
- The domicile test: This test looks at the legal concept of “domicile”. This is generally the country where you have your permanent home. You can have only one domicile at a time, and it does not change unless you move to another country with the intention of living there permanently. For example, if you were born in Australia and have never left, you have an Australian domicile. If you have an Australian domicile, you are a resident unless you have set up a permanent place of abode outside Australia. This means you have a home in another country that you live in for a long time.
- The 183-day test: This test is based on the number of days you are in Australia in a financial year (from 1 July to 30 June). If you are in Australia for more than half of the year (183 days or more), you are a resident unless you can prove that your usual place of abode is outside Australia. For example, if you are a tourist or a visitor who stays in Australia for more than 6 months, you are a resident under this test.
- The superannuation test: This test applies to certain Australian government employees who work overseas and are members of a prescribed superannuation scheme. These include diplomats, consular staff, defence force personnel, and aid workers. If you are in this category, you are a resident regardless of how long you are away from Australia or where you live.
The Quy case
The Quy case involved a taxpayer who was born in Vietnam, came to Australia as a child, and became an Australian citizen. He worked as a mechanical engineer for an Australian company and accepted two postings to Dubai, UAE, in 1998 and more recently in 2015.
The second posting was supposed to last for 24 months but was extended until early 2021. He moved to an apartment in Dubai, where he lived until he moved to Thailand for another job. His wife and three daughters stayed in Australia, living in the family home in Perth. He also owned two rental properties in Sydney, had a bank account, private health insurance, and vehicle registrations in Australia, and visited Australia for 119, 47, 29, 34, and 41 days respectively in the income years ended 30 June 2016 to 30 June 2020. In other words, in each year he was in Australia less than 183 days. His wife, however, spent 322, 183, 264, 310 and 343 days in Australia respectively.
He was assessed by the ATO as a resident for those years, and subsequently objected to those assessments. He then sought review at the AAT of the Commissioner’s decision to disallow his objections. The total amount of PAYG withholdings in relation to the relevant years was $524,943.
The AAT affirmed the Commissioner’s decision on the basis that:
- He was resident for the purposes of the ordinary concepts test because he maintained a home in Australia where his family lived, and he returned to it at every regularly, while he failed to demonstrate any connection to Dubai outside his employment.
- He was resident under the domicile test, with Australia being his domicile of choice and could not demonstrate an intention to make Dubai his permanent place of abode.
Mr Quy appealed to the Federal Court.
The court decision
The Federal Court disagreed with the tribunal, finding that it had applied the wrong tests for both residence and domicile. The court said that the tribunal had mixed up the concepts of residence and domicile, and that the intention that mattered for residence was not the intention to stay in a place forever or for a long time, but the intention to treat a place as home for the time being. The court also said that the tribunal had misunderstood the meaning of permanent place of abode, which did not require an intention to stay outside Australia for a long time, but rather a degree of permanence and continuity in the living arrangements. The court sent the case back to the tribunal for another hearing.
Conclusion
As you can see, even the ATO and the AAT have difficulty in correctly applying the residency rules for individuals. If you are concerned about your own tax residency, you can use the ATO’s tax residency decision tools on their website. Alternatively, contact us for advice tailored to your situation.
Author: Darren O’Malley – Head of the Taxation division of Kreston Stanley Williamson
*Correct as of 29 July 2024
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
