The report says that in recent years, the Tax Office has been forced to issue "hundreds" of rulings to taxpayers trying to navigate the complicated rules, and fought 30 cases through the courts.

The impact of residency is significant; there are benefits, including access to the capital gains tax discount and the $18,200 tax-free threshold for personal income tax. The downside is that residents are taxed at Australia's relatively high tax rates on their worldwide income and capital gains.

Arnold Bloch Leibler partner Clint Harding welcomed a clear primary test, such as the proposed 183-day count, but called for more information about how widespread residency problems were in the system.

"My concern is that the integrity risk posed by 'stateless citizens' creates a lot of noise but is not well understood," he said.

ATO Commissioner Chris Jordan. The regulator could use rules similar to Britain and New Zealand, including a 183-day bright- line test for residency. Alex Ellinghausen

"Australia is a pretty good place to live, and it is not like Europe where you have 30-odd countries within a three-hour flight. I think there is a real risk of overstepping on this perceived concern when it may not be warranted, and thereby missing out on the chance to really implement a clear set of bright-line tests.

Tax Institute senior tax counsel Bob Deutsch warned against overly complicated criteria in any new residency tests and said some British rules would be a backward step.

He called for the prevalence of individuals arranging their affairs to be resident nowhere to be explained.


"The scale of the problem really does need to be explained, because while I hear it often I don't actually see it often," Professor Deutsch said.

"That's what makes me think I'm not sure there are so many people who are doing this residency nowhere. We read stories about it occasionally, that some European footballer has managed to orchestrate things such that he is resident nowhere.

"It's one thing to say it, it's another to say you've gone through all the court processes and everyone agrees I'm not resident anywhere," he said.

Revenue Minister Kelly O'Dwyer has yet to outline a position on the report despite it being handed to government in August 2017.

Ms O'Dwyer has asked the board to consult further on key recommendations, including how Australia could draw on residency tests in other countries.

Two-step approach

The board recommended a new two-step approach for establishing residency, which would see inbound individuals subject to rules similar to New Zealand and Britain, requiring someone to pay tax if they have been present in Australia for 183 days or more in a 12-month period. Those who don't satisfy this "bright line" test would have their individual facts considered.

For outbound individuals, the board recommended individuals be considered non-resident if they work overseas and spend less than 31 days working, or 61 days total, in Australia.


Former residents would become non-resident if they spent less than 16 days in Australia; and someone who has never been resident of Australia would remain a non-resident if they spent less than 46 days in Australia.

The 183-day benchmark is already used by the ATO, but other factors can be considered through four tests, including "reside" test and the domicile test. Individuals at present are required to pass only one test to be considered resident of Australia.

The report says a substantial number of individuals face the question, with some paying between $5000 and $10,000 for basic letters of tax advice.

Tax experts say a simplified standard would increase the effectiveness of the rules and allow a majority of cases to be more quickly settled.

"The multitude of tests, each uncertain due to the lack of clear guidance (judicial and administrative), imposes a significant compliance burden on taxpayers and their employers," the report says.

"While the board observes that there is a risk of arbitrary and potentially inequitable outcomes should such a bright-line test be set incorrectly, the board considers that a 'days count' test is preferable to the current matrix of residency tests applicable to all individuals."

The report recommended a review of the interaction and possible alignment of tax residency rules and Australia's immigration visa regime.