45-day threshold to complicate tax residency rules, accounting bodies warn
The proposed 45-day requirement will add compliance costs and create uncertainty, IPA and CA ANZ warn.
The Institute of Public Accountants (IPA) and CA ANZ have broadly welcomed proposed changes to the Australian residency tax tests but have called for certain aspects of the proposed rules to be recalibrated.
CA ANZ said its members generally supported the primary bright line 183-day test proposed under the modernised individual tax residency framework as it is a simple and objective test to apply.
However, the accounting firm warned that treating an individual as an Australian tax resident based on being physically present in Australia without looking at an individual’s ties to Australia and ties to another country could result in undesirable policy outcomes.
“For example, an individual can visit Australia as a tourist for a period of up to 12 months under a Visitor Visa (subclass 600). Clearly, the individual has no ties to Australia and has significant ties to their home country,” CA ANZ said in a recent submission.
“If the individual stayed in Australia for 184 days, it would not make sense from a policy perspective to require the individual to be treated as an Australian tax resident and be required to pay tax in Australia on their foreign sourced income.”
While CA ANZ said while most members are also supportive of a secondary test for individuals who have been in Australia for less than 183 days, it had concerns about the proposed 45-day threshold under the secondary test.
Under the proposed model, the secondary tests would require an individual to be physically present in Australia for a minimum of 45 days in an income year before commencing residency, or a maximum of 45 days in an income year before ceasing residency.
CA ANZ said the proposed 45-day threshold was too short and should be increased to at least 60 to 90 days.
“There are many Australian citizens living abroad and with the return of international travel after the COVID-19 pandemic, many have returned to Australia to see extended family and friends.”
“The pandemic has also resulted in long-lasting changes to work. For example, the increased use of virtual meeting tools – such as Zoom, Microsoft Teams software etc – has enabled many Australian expatriates to visit Australia with their family during school holiday breaks and stay for the entire period whilst regularly ‘checking in’ with their offshore workplace virtually when required.”
The IPA said the 45-day requirement would increase overall compliance costs and detract from the certainty and simplicity sought to be achieved with the proposed model.
“Any individual present in Australia for 45 days or more in a year would need to consider whether they are a resident under the secondary test, and then consider the application of any relevant international tax treaties,” the IPA submission said.
IPA members suggested that a period of 90 days would be better aligned with the practical experience and circumstances of most taxpayers and would reduce the compliance burden for a majority of taxpayers.
CA ANZ also said that days spent in Australia due to a life event such as a medical emergency or family matter should be disregarded under the 45-day count.
“In a manner similar to the life events test under the CGT main residence exemption for foreign residents who sell their main residence in Australia, CA ANZ considers that days spent in Australia because of a life event should be disregarded for the purposes of the day count,” the accounting body said.
“This would include medical emergencies impacting an individual or their family members, attending to the aged care needs of a relative, a relative’s death and resultant management of the deceased’s estate, and attending to matters arising from the breakdown of a marriage or long-term relationship. Also, if an individual is transiting through Australia from another country, the days in transit should be disregarded.”
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