Australia’s tax‑resident status hinges on where you live and where you consider your permanent home. For wealthy entrepreneurs and investors, recent proposals could make it significantly harder to cease Australian tax residency, raising the importance of understanding the current rules and the upcoming changes.
Current Australian tax‑residency tests
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Residence test – Determined by the facts of where you actually reside.
- Factors include the location of your assets, family, social ties and day‑to‑day arrangements.
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Domicile test – Requires that your legal domicile be outside Australia.
- You must sever Australian ties and establish a new domicile abroad (e.g., Dubai, Costa Rica, the UK).
- Evidence of a long‑term lease or a long‑term visa, showing an intention to stay overseas for at least 2–3 years, is typically needed.
Both tests must be satisfied to be treated as a non‑resident for Australian tax purposes.
How to establish non‑residency
- Cut Australian ties – Sell or rent out your primary residence, close local bank accounts, and relocate family members.
- Create a foreign base – Secure a long‑term visa, lease or purchase property abroad, and obtain local documentation (driver’s licence, phone number, school enrolments, etc.) that demonstrates genuine settlement.
- Maintain documentation – Keep contemporaneous records of your departure, lease agreements, visa approvals and any correspondence about your residency status. These will be required if the Australian Tax Office (ATO) questions your claim.
You can still own Australian assets after becoming a non‑resident, but they are split into:
| Asset type | Tax treatment for a non‑resident |
|---|---|
| Taxable Australian property (e.g., rental real estate) | Subject to Australian tax on income derived from the property. |
| Non‑taxable Australian property (e.g., personal use assets) | Generally not taxed in Australia. |
Declaring non‑residency
The change of status is declared in your Australian tax return for the year you cease residency. Include a statement of your intention to become a non‑resident and attach supporting documents. The ATO will consider the date you left Australia as the primary trigger, though specific circumstances (e.g., a change in visa status) can affect the exact timing.
Proposed changes: the “45‑day rule”
A government bill under consideration would tighten the criteria for long‑term residents (those who have been Australian tax residents for three or more consecutive years). Under the proposal:
- To be treated as a non‑resident, you must spend fewer than 45 days in Australia in each of the current income year and the two preceding income years.
- Exceeding the 45‑day threshold in any of those years would reset the clock, potentially requiring another three‑year period of low‑presence to qualify.
The proposal is still under debate; some stakeholders have suggested extending the limit to 90 days, but no amendment has been confirmed.
Timeline for the new rules
- The bill must receive Royal Assent before becoming law.
- If passed, the changes are expected to take effect 1 July of the year following assent.
- Industry insiders estimate a 12‑month window for the legislation to be enacted, making early planning advisable.
Double tax agreements (DTAs)
Australia has DTAs with roughly 20–30 jurisdictions, including the UK, US, Canada, Germany, France and others. When you become a tax resident of a DTA country:
- The DTA generally takes precedence over Australian domestic law, allowing you to be treated as a non‑resident in Australia.
- The UAE, despite being a popular low‑tax destination, has no DTA with Australia, so the Australian rules would still apply fully.
Practical steps for high‑net‑worth individuals
- Choose a jurisdiction with a DTA if possible, to benefit from treaty relief.
- Obtain a long‑term visa (e.g., UAE investor visa, UK Tier 1, Canadian work permit).
- Secure a physical address – a lease of at least 12 months or a property purchase that can serve as your primary home.
- Integrate locally – open local bank accounts, obtain a driver’s licence, enroll children in schools or clubs, and engage in community activities.
- Document everything – keep copies of visas, lease agreements, utility bills, and any correspondence indicating your intention to remain abroad.
- File the non‑resident declaration in your Australian tax return for the year of departure, attaching the supporting evidence.
- Monitor the legislative timeline – if the 45‑day rule becomes law, ensure you stay under the threshold for the required three‑year period or adjust your exit strategy accordingly.
By following these steps now, you can mitigate the risk of being caught by the stricter residency rules that may soon apply, preserving the ability to manage wealth and investments with a lower Australian tax burden.
