Are you an Australian tax resident? Don’t Assume You Know the Answer

Sally Preston

Many Australians assume that once they move overseas, they automatically stop being Australian tax residents.

Unfortunately, it is not that simple.

Every year we see people incorrectly assume they are no longer Australian tax residents because they have accepted a job overseas, moved to another country, purchased a home overseas or spend most of the year outside Australia.

In some cases, they are correct. In many cases, they are not.

Getting it wrong can be expensive. Australian tax residents are generally taxed on their worldwide income. Non-residents are generally taxed only on Australian-sourced income. The difference can significantly affect employment income, business income, investment income, capital gains, foreign tax offsets and Australian tax reporting obligations.

Key point: Moving overseas does not automatically make you a non-resident. Australian tax residency depends on your facts, your intentions and the strength of your continuing connections with Australia.

There Is No Simple “183-Day Rule”

One of the biggest misconceptions is that spending more than six months overseas automatically makes you a non-resident.

Another common misconception is that being overseas for two years automatically changes your residency status.

Neither statement is correct.

Australian tax residency is determined by applying a series of legal tests and considering your overall circumstances. In 2023, the ATO updated its view on the residency rules in Taxation Ruling TR 2023/1, which sets out the Commissioner’s approach to the residency tests for individuals.

The Four Residency Tests

Australian tax residency is worked out by applying four tests. You do not need to satisfy all of them. If you satisfy any one of these tests, you will generally be treated as an Australian tax resident.

·       Resides test: This is the primary test. It asks whether, looking at your overall circumstances, you continue to reside in Australia according to ordinary concepts.

·       Domicile test: This test may apply if you have an Australian domicile. You may remain a resident unless you have established a permanent place of abode overseas.

·       183-day test:·       This test is usually most relevant for people coming to Australia. It can apply where you are physically present in Australia for more than 183 days in an Australian income year.

·       Commonwealth superannuation test: This is a narrow test for certain Australian Government employees working overseas who are members of specified Commonwealth superannuation schemes.

1. The Resides Test

The resides test is the primary residency test. If you are considered to reside in Australia according to ordinary concepts, you are an Australian tax resident.

The ATO considers factors including physical presence, intention and purpose, family connections, employment and business ties, location of assets, and social and living arrangements.

No single factor determines the outcome. The question is whether, looking at the whole picture, Australia continues to be the place where your life is centred.

Example

A person may work in Dubai, Singapore, Hong Kong, New Zealand or the UK and still remain an Australian tax resident if their spouse and children remain in Australia, the family home remains available, and they return to Australia regularly. The overseas job alone does not determine the outcome.

2. The Domicile Test

Even if you are not residing in Australia under ordinary concepts, you may still be a resident under the domicile test.

A person with an Australian domicile will generally remain an Australian tax resident unless they establish a permanent place of abode outside Australia.

The ATO considers factors such as the intended length of stay overseas, the nature of the accommodation, whether family relocated, the strength of connections retained with Australia and the strength of connections established overseas.

Common mistake: A person who accepts a temporary overseas role for two or three years may assume they have become a non-resident. However, the fact that the assignment has a defined end date may support the opposite conclusion: that Australia remains their permanent home.

Does the Two-Year Rule Exist?

You may have heard people say: “If you are overseas for more than two years, you are automatically a non-resident.”

This is not the law.

The length of the overseas stay is relevant, and a stay of two years or more may support an argument that a permanent place of abode has been established overseas. However, the outcome always depends on the broader circumstances.

Where family remains in Australia, the Australian home is retained and regular visits continue, a person may remain an Australian tax resident despite spending years overseas.

3. The 183-Day Test

The 183-day test primarily applies to people arriving in Australia.

A person physically present in Australia for more than 183 days in an income year may be treated as a resident unless their usual place of abode is outside Australia and they do not intend to take up residence in Australia.

This test often affects migrants, long-term visitors, foreign executives working in Australia and individuals spending extended periods in Australia on work assignments.

4. The Commonwealth Superannuation Test

This test applies to certain Australian Government employees working overseas who are members of specified Commonwealth superannuation schemes.

Where this test applies, the individual may remain an Australian tax resident regardless of the other residency tests. For most taxpayers, this test is not relevant.

Real-World Examples

The following examples are simplified and adapted from the types of scenarios addressed in ATO Taxation Ruling TR 2023/1.

Example 1 – A Genuine Relocation

Sarah moves overseas to establish her own business. She relocates with her spouse, purchases a home overseas, sells most Australian assets, has no fixed plans to return and only visits Australia occasionally.

These factors are consistent with ceasing Australian tax residency because the overall picture suggests she has genuinely moved her life overseas.

Example 2 – Temporary Overseas Assignment

James accepts a two-year overseas secondment. He intends to return to Australia, retains strong Australian connections, spends as much time as possible back in Australia and maintains Australian banking and superannuation arrangements.

These facts may be consistent with continuing Australian tax residency. The overseas posting may be a temporary absence rather than a genuine relocation.

Example 3 – Circumstances Change

Michael initially leaves Australia intending to return. However, while overseas his circumstances change. He purchases a home overseas, sells Australian assets and his life becomes centred overseas.

In this case, residency may change over time as the facts evolve. Residency is not necessarily determined once and forever on the date of departure.

Practical Residency Checklist

If you are moving overseas, or have already moved, consider the following questions:

☐ Where will your spouse or partner live?

☐ Where will your children live and attend school?

☐ Will you keep an Australian home available for your use?

☐ How often will you return to Australia?

☐ Is the move temporary, fixed-term or indefinite?

☐ Have you established a permanent home overseas?

☐ Where are your main assets located?

☐ Where are your social, family and business connections strongest?

☐ What evidence supports your stated intention?

☐ Have you considered whether a Double Tax Agreement may also be relevant?

Important: Tax residency is highly fact-dependent. Similar facts can produce different outcomes if the individual’s intention, family position or pattern of behaviour differs.

What About Double Tax Agreements?

A person can be treated as a tax resident of more than one country at the same time.

Where this occurs, a Double Tax Agreement may need to be considered. Many agreements include “tie-breaker” rules to determine which country has primary taxing rights for treaty purposes.

However, treaty residency is a separate issue from whether you are an Australian tax resident under domestic law. Both issues need to be considered carefully.

Final Thoughts

Tax residency is one of the most complex and fact-dependent areas of Australian tax law.

There is no single factor that determines the outcome. You cannot simply count days. You cannot simply move overseas. And you cannot simply state that you are no longer a resident.

Instead, the law looks at the totality of your circumstances and your ongoing connections with Australia.

If you are planning to relocate overseas, have already moved overseas, or are unsure of your Australian tax residency status, obtaining advice before making significant financial or tax decisions can be invaluable.

Need help determining your residency status? Smart Solutions Tax Advisory can assist with advice on Australian tax residency, including reviewing your current position, planning an overseas move and preparing private ruling applications where appropriate.

Disclaimer: This article contains general information only and should not be relied on as tax or legal advice. You should obtain advice based on your specific circumstances before making decisions about your residency status or tax obligations.

Frequently Asked Questions

Am I an Australian tax resident if I move to Dubai?

Not necessarily. Moving to Dubai or another overseas location does not automatically make you a non-resident. Your family, accommodation, assets, visits to Australia and overall pattern of life all need to be considered.

How long can I work overseas before I become a non-resident?

There is no automatic time period. A short-term or fixed-term overseas role may still be consistent with Australian residency, particularly if you intend to return and maintain strong Australian connections.

Can I remain an Australian tax resident while living overseas?

Yes. Many individuals remain Australian tax residents while living overseas, especially where the move is temporary or where significant family, asset or social connections remain in Australia.

Does my spouse remaining in Australia affect my residency?

Yes, it can. Family connections are a relevant factor and may suggest that Australia remains the centre of your life, particularly if you return regularly to live with family in Australia.

Do I pay Australian tax on overseas income?

Australian tax residents are generally taxed on worldwide income. Non-residents are generally taxed only on Australian-sourced income. Foreign tax credits and treaty issues may also need to be considered.

References / Useful Links

ATO Taxation Ruling TR 2023/1 – Income tax: residency tests for individuals: TR 2023/1 | Legal database