Revised Tax Residency in Australia: Updates You Should Know

In a move that will impact many Australian digital nomads and wealthy individuals who do business abroad, the Australian Taxation Office (ATO) has released a new ruling that tightens the criteria for determining tax residency status. The changes, outlined in Taxation Ruling TR 2023/1, were announced on 7th June 2023.

Currently, Australians working offshore can be exempt from paying Australian income tax on offshore income. However, the new ruling sets out stricter conditions that must be met to qualify for this exemption.

To avoid being deemed a tax resident, an individual must not have a permanent place of abode in Australia, not keep an Australian residence, be domiciled in Australia, and not be in Australia for 183 days in a year. Furthermore, an individual must demonstrate that their daily life takes place offshore and is not connected to Australia, including receiving mail and making payments offshore.

The ATO's view is that a pattern of frequently moving around within a country can indicate that a person is traveling or has otherwise not commenced living permanently in that country. To avoid being deemed a tax resident, an individual must sell, rent out, or not have their name on the title of their Australian residence before leaving the country.

Many "ex-pat" workers have been caught off guard by not fully understanding the requirements to become an Australian non-resident for tax purposes. For instance, Daryl and his family lost over 60% of their income due to using their Australian Address when filing tax forms and owning an empty home while living abroad.

The new ruling also incorporates recent decisions made by the Federal Court regarding how residency rules should be applied. Government workers and members of the Australian Military are not exempt from paying Australian income tax on offshore income, as was previously believed by some.

Over one million Australian citizens live and work outside of Australia, with over two-thirds of those having relocated for job opportunities in the Asian Pacific region. The ATO can claim back taxes and penalties from Australian citizens who have worked offshore but are deemed tax residents.

It is advisable not to get close to the maximum number of days spent in Australia, and not to spend all vacation visits in Australia to avoid being deemed a tax resident. Those working offshore should carefully consider their tax obligations and seek professional advice to ensure they are compliant with the new rules.

Living on a cruise ship does not qualify as an offshore residence, and individuals should be mindful of this when considering their tax residency status. The changes in Australian tax residency rules will particularly impact those who have been taking advantage of the current loopholes to avoid paying Australian income tax.

The ATO's new ruling aims to ensure that all Australian citizens pay their fair share of tax, regardless of where they work. It is important for Australians working offshore to understand the implications of the new ruling and take steps to ensure they are compliant.