Residency – Individuals (and trusts)

This post is an excerpt from the paper 'Residency – Individuals (and trusts)', this month's free technical paper for members.

Individual tax residency is a ‘hot topic’ which will only continue to be the case given the complexity and factual driven nature of the relevant tests and the increasing global mobility of individuals.

The drafters of the individual residency test, developed in the 1930s, could not have envisaged the application of their test to factual circumstances that occur today.

Cheap global travel and the opportunity to move between countries for work and lifestyle reasons must have seemed fanciful only a few years after Charles Lindberg’s ground-breaking 33 ½ hour flight in 1927 across the Atlantic.

The individual residency tests need reform to simplify determining when a person is, or is not, an Australian tax resident.

In 2018, the Board of Taxation (Board) recommended a new bright line test. The then Assistant Treasurer ‘welcomed’ the report and asked the Board to consult further on the recommendations.

Whether this stays a reform priority is the aftermath of the May 2019 Federal election remains to be seen.

Any comments by the High Court on the difficulty and complexity of the test in the special leave application by the Commissioner of Taxation (Commissioner) appealing the Full Federal Court decision of  Harding v Federal Commissioner of Taxation [2019] FCAFC 29 (Harding), irrespective of the outcome of the special leave application or substantive hearing, may add further weight to any reform impetus.

In their paper, authors Kelvin Yuen, Neil Brydges, CTA, and Sam Campbell, ATI, discuss the individual residency tests, the approach by the Full Federal Court in  Harding, reform initiatives, and practical ways to assess individual residency.

They also look at the residency tests for trusts, an often-overlooked area of the tax law. What does (if anything) the decision in Harding and the High Court decision in Bywater Investments Limited v FCT [2016] HCA 45 (Bywater) mean for the residency of a trust?
The paper also covers:
  • Australian tax residence
  • Harding’s case – Full Federal Court’s decision and impact
  • what of the ATO’s appeal to the High Court?
  • Handsley v FC of T
  • Board of Taxation – consultation guide and report.
  • providing direction over the important or, not important variables, but you should do it anyway?
  • residency of a trust.

As the authors note, the Australian individual tax residency tests are multi-faceted, complicated, and difficult to apply and desperately in need of reform. Given the increasing global mobility of individuals this difficulty will only continue, and the complications get worse, until a change to the rules occurs.

Members, you can access the paper here.

Not a member?  Find out more about the benefits membership of The Tax Institute can deliver for your role.

About the authors

Kelvin Yuen is a Lawyer, with Sladen Legal.

Neil Brydges, CTA, is a Principal Lawyer in Sladen Legal’s tax group. Neil practises in all areas of direct and indirect tax with a focus on the taxation of trusts, corporate tax, mergers and acquisitions, international tax, and Division 7A. He is an Accredited Specialist in Taxation Law and Chair of the Tax & Revenue Law Committee with the Law Institute of Victoria and a Chartered Tax Adviser and member of the SME, Dispute Resolution, and GST Technical Committees with The Tax Institute.

Sam Campbell, ATI, is an Associate with Sladen Legal.


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