Tax Return:: Australian Residency Tests

Hello, this is your tax and super specialist, P&C Tax Professionals.

When it comes to lodging your tax return, you would have come across the question “are you an Australian resident for tax purposes?” It may seem like a pretty straightforward question but there are a number of factors to take into account in order to answer the question correctly. Therefore, in today’s blog post, we will endeavour to clear some of the confusions people may have when answering their residency question.

<Residency Tests>

There are four residency tests in total (of which three of them are statutory tests) which will ultimately help you to determine your residency status. In order to be considered an Australian resident, you are only required to meet one out of these four tests.

Resides Test:

As the name suggests, if you are residing in Australia, under the ordinary meaning of ‘reside’, this means that you are an Australian resident for tax purposes and there is no need to look into any of the other residency tests. The ordinary meaning of ‘reside’ basically means “to dwell permanently, or for a considerable time, to have a settled or usual abode, and to live in a particular place.”

There are a couple of factors that must be taken into consideration when assessing your residency status through the resides test:

> your physical presence in Australia

> your intention and purpose of residing in Australia (e.g., are you looking to reside permanently in Australia and are you taking steps to achieve this?)

> family

> business or employment ties

> maintenance and location of assets

> social and living arrangements (e.g., is your social/living arrangements similar to that of an Australian resident?)

Domicile Test:

The domicile test is the first out of the three statutory tests. This test implies that you are an Australian resident if your domicile (i.e., your permanent place of abode) is within Australia.

There are two steps to this particular test:

1. Determine your domicile

> If you are not in Australia, the domicile test will not be satisfied.

> If you are in Australia, proceed to step 2.

2. Determine your permanent place of abode

Permanent: contrary to temporary/transitory

Place of abode: refers to your residence (i.e., where you live with your family members and sleep at night)

> If your permanent place of abode is not in Australia, the domicile test will not be satisfied and hence, you will not be an Australian resident for tax purposes.

> If your permanent place of abode is in Australia, the domicile test will apply to you and you will consequently be regarded as an Australian resident for tax purposes.

183 day Test:

The 183-day test is the second out of the three statutory tests.

If you have been residing in Australia for over 183 days or more than half the income year, you can potentially be considered as having a constructive residence here in Australia unless:

> your usual place of abode is located outside of Australia.

> you have zero intention to take up residence in Australia.

From here, the term ‘usual place of abode’ is different to the phrase ‘permanent place of abode’. Your ‘usual place of abode’ is generally interpreted as your habitual residence or home that you commonly use whilst you are physically present in the country.

Moreover, the time you are present in Australia does not have to be continuous when applying the 183 day test. This means that every single day you are physically living in Australia during the income year will be taken into calculation. This is also including your arrival and departure date. Most importantly, the 183 day test uses the income year (1 July – 30 June) and not the calendar year when calculating the number of days.

The Commonwealth superannuation test:

The superannuation test is the third and final statutory test.

According to this test, you are deemed to be an Australian resident if you are a contributing member of the following:

> the Public Sector Superannuation Scheme (PSS), or

> the Commonwealth Superannuation Scheme (CSS).

Conversely, the test will not be applicable to those of you who are members of the Public Sector Superannuation Accumulation Plan (PSSAP).

If you happen to have satisfied this test and therefore, you are an Australia resident, your spouse and any children under the age of 16 would also be considered Australian residents for tax purposes.

<What happens if my residency status changes during the year?>

If your residency status changed from being a resident to a foreign resident throughout the income year, you should answer ‘yes’ for the question ‘Are you an Australian resident?’ upon lodging your tax return. This will make sure that you are taxed at the resident rates for the given financial year. Here, you will be entitled to a pro-rata tax-free threshold but only for the total number of months you are classified as an Australian resident.

This sums up our discussion for today. If you would like to enquire about matters relating to your tax and super, you can do so through our official Facebook Page (P&C Tax Professionals – Australia) or by using our email address at pnctax@naver.com.

Thank you and bye for now!