Detailed Guide to Australian Tax Residency

Many people assume that determining whether someone is a tax resident of a country (i.e., required to pay taxes on their income in that country) is as simple as checking whether they have lived there for 183 days in a year. Unfortunately, in reality, determining tax residency can be a complex challenge. The so-called "183-day rule" is merely a common standard (and not even an international one), but upon closer inspection, it becomes apparent that each country has its own criteria for determining tax residency.

If you have the chance to read the OECD’s 2017 Model Tax Convention, you’ll notice that even when determining individual tax residency, the 183-day rule is not the sole criterion.

This is because, if the 183-day rule were the standard for taxation, avoiding taxes would be too simple. Individuals could simply ensure they don’t stay in any one country or region for more than six months and thereby achieve global income tax exemption!

Since the launch of the international anti-tax avoidance BEPS Action Plan in 2015, it’s now eight years in the making. The idea that one could evade taxes by merely "moving around" is an insult to the intelligence and efforts of those working on international tax compliance. In international taxation, anything that seems like an easy way to avoid taxes should be approached with caution—because it’s almost certainly not legitimate.

Many high-net-worth individuals believe they have successfully avoided taxes simply because they haven’t been caught by tax authorities. However, this doesn’t mean their actions are legal or compliant. In the era of big data and artificial intelligence, tax authorities have been using global data to train AI models to identify tax avoidance behaviors. Being caught is only a matter of time. Once discovered, the back taxes, penalties, and interest can easily wipe out one’s wealth.

This article will explain the tax residency criteria of one popular immigration destination: Australia. On February 20, 2022, the Australian Taxation Office (ATO) released Draft Tax Ruling TR 2022/D2, which provides a detailed analysis of three of the four tests used to determine whether an individual is an Australian tax resident:

1. Ordinary Concepts Test
2. Domicile Test
3. 183-Day Test

The ATO also provided 14 examples to further clarify these rules. Readers will notice that the familiar "183-day rule" is just one of the requirements.