Under current rules, individuals are residents of Australia if they reside in Australia, and this includes the following:
- Individuals whose domicile is in Australia, unless they have a permanent place of abode outside Australia.
- Individuals who have actually been in Australia for more than one-half of the income year (i.e. at least 183 days in the income year), unless the individual's usual place of abode is outside Australia and the individual does not intend to reside in Australia.
- If the individual is an 'eligible employee' for the purposes of legislation relating to the superannuation entitlements of Federal public servants.
Each residency decision turns on its facts. For instance, persons who take up a contract of employment in Australia may be regarded as residents if they are in the country for more than six months, particularly as this will usually be accompanied by other factors, such as physical presence and assets in Australia. Citizenship and nationality do not determine liability for Australian income tax.
A temporary resident for tax purposes is, broadly, an individual who:
- holds a temporary visa granted under the Migration Act 1958
- is not an Australian resident within the meaning of the Social Security Act 1991, and
- does not have an Australian spouse as defined in the Social Security Act 1991.
A temporary resident will be exempt from Australian tax on foreign source income, while a resident of Australia is subject to tax on worldwide income.
Australia's tax treaty arrangements with certain other countries contain special rules for determining the jurisdiction to tax specified types of income (see Tax treaties in the Foreign tax relief and tax treaties section for more information). Most treaties contain 'tie-breaker' rules which seek to overcome situations where an individual is treated as resident of both Australia and the other tax treaty country. The determination of resident status under these tie-breaker rules overrides the operation of the general resident status rules referred to above.
The then Australian government announced in its 2021/22 Federal Budget that it will replace and modernise the tax rules for determining individual tax residency. There has been a change of government since this was first announced, and it remains unclear whether this proposal will proceed. If the measure is enacted as originally announced, under this proposal, there will be a new primary ‘bright line’ test where an individual would become an Australian tax resident if they are physically present in Australia for 183 days or more in any tax year. Where an individual does not meet this primary test, secondary tests apply. These secondary tests would set out objective criteria, e.g. whether an individual has the right to reside permanently in Australia, whether they have Australian accommodation, family located in Australia, or Australian economic connections. If these changes are enacted as originally announced, then they are proposed to apply from 1 July following the enactment of the enabling legislation, i.e. 1 July 2024 at the earliest.