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Australia – Board of Taxation Issues Report on Recommendations for Tax Residency

Australia – Board of Taxation Issues Report on Recommen

Australia’s Board of Taxation has now released the report on reform of the individual tax residency rules that it provided to the federal government in March this year. What the Board is proposing Board would provide greater certainty for taxpayers by re-focusing the tax residency rules in three ways – to learn more, read this report. Because the federal government has not indicated its next steps on this matter, it is difficult to predict what is to become of these recommendations.

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Australia’s Board of Taxation has now released the report on reform of the individual tax residency rules that it provided to the federal government in March this year.1 

The Board has concluded that the tax legislation requires improvement and simplification in order to adequately address 21st-century social and employment circumstances.  

WHY THIS MATTERS

Tightening up and modernising the rules around tax residency for individuals would give global mobility managers and employees moving into and out of Australia greater clarity and certainty around how an individual’s tax residence in Australia would be determined. This would facilitate better planning around travel to and from Australia and periods of work in Australia and outside Australia.  This would also help with budgeting and planning around tax costs tied to international assignments.  

Focus of Proposals

According to the Board, what it is proposing would provide greater certainty for taxpayers by re-focusing the tax residency rules in three ways:

  • making physical presence the primary measure of residency – moving Australia to closer alignment with international practice;
  • focusing on Australian connections – providing that two individuals with identical physical presence and other connections to Australia should be treated the same; and
  • adopting only objective criteria – removing any requirement to test intention or undertake broad, holistic examinations.

Key Features of Board’s Proposals

An individual who spends 183 days or more in Australia in an income year would be a tax resident for that income year, regardless of the person’s broader circumstances.

An individual who spends less than 183 days in Australia in an income year could also be a tax resident for all or part of that year, if the person meets certain tests.

An individual who had been resident for three or more consecutive years would have to satisfy more requirements in order to cease Australian tax residence.

An individual who is employed overseas for more than two years, has accommodation available to him at the place of employment throughout, and spends less than 45 days in Australia during each income year of the overseas employment period, would be a nonresident during the overseas employment period.

KPMG NOTE

The federal government has not provided any indication of when or how it may respond to the Board’s report.  Therefore it is difficult to predict what might become of these recommendations.

The Board’s work has shone a welcome light on the difficulties that taxpayers encounter in applying the current rules to modern situations.  This was also on display in the recent matter of Commissioner of Taxation v Harding, where the Commissioner thought a dispute on an individual’s tax residency position was worthy of taking to the High Court.2

The Board’s recommendations would generally represent a more modern approach to determination of individual tax residency.  However, they still contain subjective elements, and their interaction with Australia’s bilateral tax treaties would continue to give rise to complexity for taxpayers.

FOOTNOTES

1  For more information on The Board of Taxation’s activities with respect to individuals and tax residency, click here.  Also, see GMS Flash Alert 2018-102, 25 July 2018. 

2  For prior coverage, see GMS Flash Alert 2019-145, 19 September 2019.   

PEOPLE SERVICES IN AUSTRALIA

Dan Hodgson

Perth, Western Australia

Partner – People Services

Tel. +61 8 9278 2053

Mobile: +61 416 017 131

dghodgson@kpmg.com.au

 

Mardi Heinrich

Melbourne, Victoria

Partner – Deals, Tax & Legal People Services

Tel. +61 3 9838 4348

Mobile: +61 410 602 993

meheinrich@kpmg.com.au

 

Ablean Saoud

Sydney, New South Wales

Partner – Deals, Tax & Legal People Services

Tel. +61 2 9335 8550

Mobile: +61 421 052 596

asaoud@kpmg.com.au

 

Hayley Lock

Brisbane, Queensland

Partner – People Services

Tel. +61 7 3434 9176 

Mobile: +61 477 764 638

hlock@kpmg.com.au

 

Jackie Shelton

Sydney, New South Wales

Partner – Deals, Tax & Legal

Tel. +61 2 9335 8511

Mobile: +61 477 764 638

hlock@kpmg.com.au

The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

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Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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