Individual Residency Rules – Draft Taxation Ruling released

On 6 October 2022, the ATO released Draft Taxation Ruling TR 2022/D2 Income Tax: residency tests for individuals.

TR 2022/D2 has consolidated and replaced previous ATO rulings, TR 98/17 and IT 2650 (both withdrawn effective 6 October 2022) on the ATO’s interpretation of the residency rules as set out in Section 6(1) of the Income Tax Assessment Act 1936. It includes updates to consider developments in recent judicial decisions such as Harding, Addy and Pike.

Key takeaways from the draft ruling

• Establishing a ‘place of abode’ outside of Australia does not refer only to a specific house, flat or dwelling, rather it refers to a town or country (Harding).
• Working holiday makers could be Australian residents depending on their specific facts and circumstance.

Residency Rules remain to be complex

While the draft ruling attempts to reduce uncertainty in this area, the current residency rules remain complex, and we don’t expect any further clarification on this issue until more progress is made with the new “bright line” residency tests announced in the 2021-22 Federal Budget (see Residency changes).

How will this impact you?

• Australian expats currently residing in Australia or posted overseas should continue to review their tax residency status as their specific facts and circumstances change.
• Individuals intending to travel in/out of Australia should have their residency status reviewed.
• It is important to obtain certainty on one’s residency position as this will impact what is taxable in Australia. The tax implications of the incorrect application could be adverse.

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