Global advice firm Atlas Wealth Management has handed in a petition to the Australian House of Representatives over changes to the country’s tax residency rules.
In the 2021-22 Australian Federal Budget that was handed down by the previous Coalition party, it was proposed that the Australian tax residency rules would be revised.
These changes would affect most Australian expats once implemented and will be based on a primary test as well as a secondary test.
The primary test states that if an Australian expat spends more than 183-days in Australia they will be an Australian tax resident. The secondary test applies to individuals who have been in Australia for more than 45 days but less than 183-days in an income year.
The Albanese Government confirmed there will be a second Federal Budget handed down on 25 October 2022 and there has been a confirmation from the government that it is reviewing and considering the Board of Taxations tax residency recommendations from the report they released in 2019.
In anticipation of this, Atlas Wealth Management lodged an application for a House of Representatives petition back in May 2022 when the government was elected to address its concerns for the greater Australian expat community about the tax residency rules change.
The firm asked the House of Representatives to take into account the inequitable outcome for those Australian expats who do not have the protection of a double taxation agreement (DTA) when drafting the bill and implement the following:
- A scoring or points system needs to be applied to the factor test in order to appropriately weight a persons ties to Australia;
- The proposed 45-day rule needs to be amended to 90 days in line with other countries as too many individuals may be categorised as tax residents without any enduring connection to Australia when visiting friends and family;
- Provision and/or exclusions to be made during times of war or a pandemic when people are displaced;
- Provision and/or exclusions to be made for travel to Australia as a result of family sickness or work/business travel; and
- Exclusions to be made for Australian citizen children returning to Australia to attend boarding school under the family factor test.
Reliance on double tax agreements
Brett Evans, managing director of Emea at Atlas, said: “When the idea for a change to the tax residency rules were announced, we agreed that it was time for an update.
“The last time they were amended was in the 1930s and the working life of an expat no longer fits with what was agreed in the 1930s. The new rules are a departure from the behaviour-based model to one of a scoring-based system using a bright line test.
“While we agree with using a scoring system to provide a more quantitative answer as to whether a expat is a resident or non-resident for tax purposes under the proposal put forward by the Board of Taxation, there were a number of areas we found that would make the new rules provide the wrong answer. For example, ties had been renewed with Australia causing them to be classified as a resident for tax purposes when in fact they should be classified as a non-resident.
“The new rules also relied too heavily on the respective DTAs, and, in turn, the tie breaker clauses, to protect expats from being classified as a resident for tax purposes. This reliance on the DTA meant that those Australians living in countries without a DTA were receiving an inequitable treatment compared to their fellow citizens who lived in a country that does have a DTA with Australia.
“By ensuring a number of provisions and exclusions were included in the new legislation, it meant that Australian expats could navigate their time overseas with their trips back to Australia (for work, family or holiday reasons) and not trigger any adverse classifications.”