Tax Residency: "Homeward Bound" or "Nowhere Man"?
Tax residency is a legal status used to determine a country's right to tax your income. It isn't about your visa or passport; it’s about where your life actually happens.
Tax Residency Rules in Australia
Under Australia tax law, residency relies on "fact and degree" to decide if the ATO can claim a slice of your global pie. Therefore, you can be an Australian citizen but a "foreign resident" for tax purposes, or a foreign citizen and an "Australian resident" for tax purposes.
Under the section 6(1) of Income Tax Assessment Act 1936 (ITAA 1936), there are four statutory tests to determine if you are an Australian resident. Crucially, these tests are "inclusive" which mean if you satisfy any one of these tests, you will be deemed a tax resident of Australia.
The Resides Test: The primary test. Do you "reside" here according to ordinary concepts? The ATO looks at your intention, family ties, and living arrangements.
The Domicile Test: If your permanent home (domicile) is in Australia, you are a resident unless the Commissioner is satisfied you have a permanent place of abode elsewhere.
The 183-Day Test: If you are in Australia for half the year, you are generally a resident unless your "usual place of abode" is overseas.
The Commonwealth Superannuation Test: Applies to certain government employees working at Australian posts abroad.
Real examples we have seen in the court:
Harding v Commissioner of Taxation [2019] FCAFC 29 - Mr. Harding who lived in a temporary Bahrain apartment while his family stayed in Oz was a foreign tax resident because he had a "permanent place of abode" overseas.
Addy v Commissioner of Taxation [2021] HCA 34 - Ms Addy was a British backpacker. While the court agreed that she wasn’t a tax resident, imposing foreign tax rate on her Australian income was a "tax discrimination" under the UK-Australia Double Tax Agreement.
Sanderson v Commissioner of Taxation [2021] AATA 4305 - Mr. Sanderson spending only 83 days in Australia during the 2016 income year and maintaining significant business ties in Malaysia. However, the Tribunal concluded he was a tax resident since he maintained a family home Gold Coast where his wife and child resided and his foreign residences were short-term and paid by his employer.
Duff v Commissioner of Taxation [2022] AATA 3675 - Mr. Duff spent 279 days working as a seafarer on Norwegian cruise ships during the 2016 income year. The ship was sailing in different countries, and he failed to establish he has permanent place of abode (i.e. not living permanently in one single country). The tribunal concluded that he was tax resident.
Commissioner of Taxation v Pike [2020] FCAFC 158 - Mr. Pike lived and worked in Thailand while his de facto wife and children resided in Australia between 2009 and 2014. While the court agreed Mr. Pike was Australian tax resident under Australian tax law, the tiebreaker test in tax treaty between Thailand and Australia prevail. The court held that Mr. Pike was a tax resident solely of Thailand for the 2009–2014 period because of the tax treaty,
Kirtlan v FCT [2025] ARTA 539 - Mr. Kirtlan lived partly in Australia and partly in the United Kingdom (UK) during the relevant years. He leased a property in London and have his daughter enrolled in a UK school. On the other hand, he significant number of days in Australia. His wife and daughter returned to Australia permanently in late 2005, and the family purchased a new home in Perth in 2006. The tribunal commented Mr. Kirtlan could be foreign resident because he obtained reliable and professional advice from his accountant and no tax evasion involved.
Quy v Commissioner of Taxation [2025] ARTA 174 - Mr. Quy an engineer was assigned to work in Dubai from September 2015 until 2021 but his wife and three daughters were still living in Australia. The Tribunal concluded that Mr. Quy failed to proof he has a permanent place of abode outside Australia and he was Australian tax resident.
How Tax Residency Affects Your Tax
Tax on Worldwide Income Australian residents are subject to tax on their worldwide income, though they benefit from the tax-free threshold. In contrast, foreign residents are generally only taxed on Australian-sourced income, but they are taxed from the first dollar earned.
Capital Gains Tax Discount Concession. While residents enjoy a 50% CGT discount on assets held for over 12 months, foreign residents are generally ineligible for this discount.
Capital Gains Tax Exemption for Primary Home. Following legislative changes in December 2019, individuals who sell their primary Australian home while classified as “foreign residents” generally lose their CGT-exempt status entirely, even for the years they resided in the property. Foreign residents are also typically ineligible for the 50% CGT discount on the disposal of assets.
Corporate Directorship - An Australian private company must have at least one director who "ordinarily resides" in Australia.
Corporate Residency - A foreign-incorporated company can inadvertently become an Australian tax resident if its Central Management and Control (CMC) is exercised by tax resident.
SMSF Residency - If a non-resident member makes contributions to the fund, it can easily fail Active Member test and Central Management and Control, resulting in the fund being declared non-complying and taxed at the top marginal rate of 45% on its entire asset value.
Navigating the transition between being "within" and "without" the Australian tax net is a high-stakes endeavor. As the previous court judgements demonstrate, the line between a foreign resident and an Australian resident is often thin, and the ATO’s scrutiny has never been sharper. As you plan your next global move, remember that residency is a matter of fact and degree, not merely a matter of intent. Proactive documentation and a clear understanding of the four statutory tests are your best defenses against an unexpected tax bill.
How we can help
Determining your status in a shifting global landscape requires more than just a cursory glance at a calendar. If you have questions about your tax residency or are planning a move overseas, please do not hesitate to contact us. Our team possesses extensive expertise in international tax matters and complex residency cross-border transitions. We can help you structure your affairs to ensure compliance while protecting your global wealth.
Disclaimer: This newsletter provides general information only and does not constitute formal tax advice.