AU Tax Residency

AU Tax Residency

Section 1 — Quick Reference

Section 1 — Quick Reference

Field	Value
Country	Australia
Residency tests	4 tests — resident if ANY test is satisfied
Key test for most individuals	Resides test (facts and circumstances)
Exit CGT	Deemed disposal of most non-TAP CGT assets on departure
Primary legislation	ITAA 1936 s.6(1) definition of "resident"
Tax authority	ATO (ato.gov.au)
Verified by	Pending — Australian CPA/CA sign-off required

Section 2 — The Four Residency Tests

A person is an Australian tax resident if they satisfy any one of these:

• Source of the tests — The four tests come from the definition of resident in subsection 6(1) of the Income Tax Assessment Act 1936, as explained in Taxation Ruling TR 2023/1, which replaced the withdrawn TR 98/17 and IT 2650. Consider all four before concluding that a person is a foreign resident. (TR 2023/1)

Test 1: Resides Test (Ordinary Concepts)

• Resides Test — The primary test. A person "resides" in Australia under ordinary concepts — considers: Intention and purpose of stay; Family and business ties; Maintenance of a home in Australia; Frequency, regularity, and duration of visits; Social and living arrangements. No single factor is determinative. Short-term visitors may satisfy this test; long-term absentees may not.

Test 2: Domicile Test

• Domicile Test — A person domiciled in Australia is a resident UNLESS the ATO is satisfied they have a permanent place of abode outside Australia. Domicile in Australia is acquired by birth (domicile of origin) or by living in Australia with intent to remain permanently. "Permanent place of abode" requires more than temporary accommodation — established overseas home, settled intention to remain, family ties overseas. Applies to Australians living abroad who have not established a clear permanent place of abode elsewhere.
• Permanent place of abode — A permanent place of abode can be a town or country rather than a particular dwelling, and it does not require ownership of a home or a promise never to return. Domicile is a legal concept distinct from tax residency, nationality and a mailing address. (TR 2023/1)

Test 3: 183-Day Test

• 183-Day Test — A person who is present in Australia for 183 days or more during an income year is a resident UNLESS: Their usual place of abode is outside Australia, AND They have no intention of taking up residence in Australia. This test can catch short-term workers and frequent visitors.

Test 4: Superannuation Test

• Superannuation Test — Australian Government employees contributing to a Commonwealth public sector superannuation scheme are residents. Rarely relevant outside government employment.
• Scope of the superannuation test — The test covers members of the PSS and CSS Commonwealth schemes, and their spouses and children under 16. Membership of another Australian fund, including PSSap, or government employment on its own is not enough. (TR 2023/1, paragraphs 96 to 97)

Section 3 — Ceasing Australian Tax Residency

• Ceasing residency — There is no formal departure filing or "exit application" required. Residency ceases when the facts show you have left Australia and established residency elsewhere. The ATO looks at: You have left Australia; You have established a home (permanent place of abode) in another country; Your family ties, bank accounts, memberships, etc. have moved; You do not intend to return to live in Australia. Date of cessation: the day you departed Australia (if that departure is the clear break), or a later date if you maintained strong Australian ties after departure.
• Arrival or departure during a year — Identify when the facts changed. A person can remain resident after physically leaving, or become resident after arriving as a visitor, and a retained bank account or home is a fact to weigh rather than an automatic answer. Record travel dates and days in Australia for each income year, then the homes available in each country, family arrangements, employment terms, visas, belongings, social commitments and contemporaneous intentions, and explain any gap between stated intentions and actual conduct. (TR 2023/1)

Section 4 — Exit CGT: The Departure Tax

• Exit CGT deemed disposal — When you cease to be an Australian tax resident, you are treated as having disposed of most CGT assets at market value on the day before you stopped being a resident. This triggers CGT on any unrealised gains in those assets.
• Exceptions — no deemed disposal on exit — Taxable Australian Property (TAP): Australian real property, shares deriving value from Australian real property. Australia retains taxing rights on TAP when actually sold. Assets used in an Australian permanent establishment.
• Election to defer — You can elect to NOT trigger exit CGT and instead remain subject to Australian CGT when the assets are eventually sold (even as a non-resident). This defers the tax but means ongoing Australian filing obligations.
• Which assets I1 covers — Section 104-160 excludes taxable Australian real property, assets of an Australian permanent establishment, and options or rights over those assets. It does not exclude every category of taxable Australian property: an indirect Australian real property interest can remain within the event. Compare cessation-date market value with the cost base or reduced cost base for each asset within I1. (ITAA 1997 (Cth) s 104-160)
• The choice applies to every affected asset — An individual may choose under section 104-165 to disregard all I1 gains and losses. The choice covers the whole set of affected assets, not selected winners or losers, and those assets are then taxable Australian property until a CGT event ends ownership or the person resumes Australian residency. (ITAA 1997 (Cth) s 104-165)

Section 5 — Dual Residency

• Dual residency tie-breaker rules — Australia's DTAs with 45+ countries contain tie-breaker rules for individuals resident in both Australia and the treaty country: 1. Permanent home: resident of the country where permanent home is available. 2. Centre of vital interests: if homes in both, resident where personal/economic ties are closer. 3. Habitual abode: if still unclear, where person habitually abides. 4. Nationality: if still unclear, by nationality. 5. Competent authority agreement.
• Read the actual treaty — Domestic residence and treaty residence are separate findings. Where both countries treat the person as resident, apply the residence article of the treaty in force and any modifying provisions, and record its effect on each class of income. Temporary resident concessions need a separate assessment: an Australian tax resident on a temporary visa may qualify, but the visa alone does not answer the tax conditions. (ATO, Foreign residents and capital gains tax)

Section 6 — Partial-Year Residency

• Partial-year residency treatment — In the year of departure or arrival, a person may be a resident for only part of the year. Australian-source income: always taxable in Australia, regardless of residency status. Foreign-source income: only taxable during the period of Australian residency. CGT assets: exit CGT applies to non-TAP assets from the date residency ceases; any subsequent gains on those assets (if sold after) generally not taxable in Australia (unless TAP).
• Part-year threshold and withholding income — Apply the part-year tax-free threshold and the Medicare levy rules for the resident months. Classify each receipt by source, timing, exemption and treaty treatment: some Australian-source investment income of a foreign resident, such as interest and unfranked dividends, has final withholding treatment rather than assessment at marginal rates. (ATO, Your tax residency)

Section 7 — Sources

• ITAA 1936, section 6(1) — definition of "resident of Australia"
• ATO: ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency
• ATO Taxation Ruling TR 2023/1, Income tax: residency tests for individuals (TR 98/17 and IT 2650 are withdrawn), https://www.ato.gov.au/law/view/document?docid=TXR/TR20231/NAT/ATO/00001
• ATO: Capital gains tax (CGT) and ceasing to be an Australian resident

Working paper only. Residency determination is highly fact-specific. Engage an Australian tax adviser for a formal residency opinion before making decisions that rely on non-resident status.

Contributed by Ryan Duguid.