Tax residency

Determining tax residency

Determining tax residency is essential in order to determine how an individual or entity will be taxed in Australia.

An Australian tax resident is assessable on their worldwide income, derived from all sources, for tax purposes. However, a non-resident is only taxed on their Australian-sourced income.

Due to the increasing globalisation of business and the global mobility of individuals, tax residency is a key risk in the privately owned and wealthy group market. Incorrect residency disclosures may lead to other tax risks, which may be present for the taxpayer and their wider group.

There's a small proportion of private group taxpayers that lodge their tax returns as non-residents for tax purposes. However, our data suggests that many of these could be residents.

Additional risks may arise because of a change in an individual or entity's tax residency status.

Individual tax residency

There are generally 2 scenarios where individuals may have incorrectly self-assessed as non-residents.

Individuals who remain Australian residents while overseas – individuals who are long-term Australian tax residents lodge as non-residents for income tax purposes while staying overseas. However, their facts and circumstances don't sufficiently demonstrate the cessation of their Australian tax residency.

Change of residency status for individuals entering Australia – individuals who visit and remain in Australia continue to lodge as non-residents despite their facts and circumstances demonstrating they're Australian tax residents.

Corporate tax residency

A company is a resident of Australia if either:

• it's incorporated in Australia, or
• it carries on business in Australia, even if not incorporated in Australia, and has either its
  • central management and control in Australia, or
  • voting power controlled by shareholders who are residents of Australia.

Corporate residency may also be affected by relevant tax treaties.

We have some tax rulings and guidelines to help determine individual and corporate residency.

• Taxation Ruling TR 2023/1 Income tax: residency tests for individuals outlines the residency tests for individuals for tax purposes and when a person will be considered as a tax resident of Australia.
• Taxation Ruling TR 2018/5 Income tax: central management and control test of residency provides how to apply the central management and control test of company residency.
• Practical Compliance Guideline PCG 2018/9 Central management and control test of residency: identifying where a company's central management and control is located contains practical guidance to assist foreign incorporated companies and their advisors to apply the principles set out in Taxation Ruling TR 2018/5, to help determine whether they are a resident under the central management and control test of company residency.
• Your tax residency provides guidance on working out tax residency for individuals.
• Working out your residency helps business entities determine their tax residency.