Board observation The Board considers that the use of domicile warrants reconsideration. As noted earlier, the integrity concern regarding the resident of nowhere should be addressed, and is arguably exacerbated by the diverging development of the domicile and resides tests over time. Further, as the concept of domicile does not align with inbound residency rules in most other countries (or Australia’s DTAs), the Board agrees that this test should be replaced (or amended) to more closely align with modern residency standards. This would provide individuals and their advisers with a richer source of guidance, by leveraging considerable international expertise and materials that currently exist. Improving this test can improve simplicity and certainty, as well as addressing an important integrity concern. Absence of sufficient certainty leading to inequity and integrity concerns Throughout the consultation process, the issue of complexity for individuals was consistently raised. Many consultees emphasised that the current rules are open to manipulation. In particular, consultees noted that the complexity of the residency tests (and their reliance on resource intensive tests of facts and circumstances) mean that a variety of reasonably arguable positions are open to individuals. This uncertainty also creates opportunities for taxpayers to manipulate the rules. Consultees observed that the test requires significant ATO resources for the Commissioner to rebut the position taken by an individual. As the ATO must appropriately target its limited compliance resources, this means that the ATO might not target all incorrect residency outcomes in a selfassessment environment as it will direct resources to areas it determines to be high risk. Consultees conveyed that the position taken in many of these circumstances therefore relies on the risk appetite of the individual; however, the risk can be reduced by obtaining compelling specialist tax advice. Consultees noted that much of this advice is provided in the absence of a private ruling from the ATO. It was suggested that this undermines the equity of the residency rules as individuals could residency ‘shop’ for the most preferential outcome, should they be able to afford the advice. Consultees noted that, in their experience, in addition to conscious manipulation of the residency rules, the interpretative undertaking of the residency tests can lead to reasonable positions being taken that vary significantly dependent not only on the underlying facts and circumstances, but also on the individual or adviser’s understanding of judicial and administrative guidance.
Board observation The Board considers that the use of domicile warrants reconsideration. As noted earlier, the integrity concern regarding the resident of nowhere should be addressed, and is arguably exacerbated by the diverging development of the domicile and resides tests over time. Further, as the concept of domicile does not align with inbound residency rules in most other countries (or Australia’s DTAs), the Board agrees that this test should be replaced (or amended) to more closely align with modern residency standards. This would provide individuals and their advisers with a richer source of guidance, by leveraging considerable international expertise and materials that currently exist. Improving this test can improve simplicity and certainty, as well as addressing an important integrity concern. Absence of sufficient certainty leading to inequity and integrity concerns Throughout the consultation process, the issue of complexity for individuals was consistently raised. Many consultees emphasised that the current rules are open to manipulation. In particular, consultees noted that the complexity of the residency tests (and their reliance on resource intensive tests of facts and circumstances) mean that a variety of reasonably arguable positions are open to individuals. This uncertainty also creates opportunities for taxpayers to manipulate the rules. Consultees observed that the test requires significant ATO resources for the Commissioner to rebut the position taken by an individual. As the ATO must appropriately target its limited compliance resources, this means that the ATO might not target all incorrect residency outcomes in a selfassessment environment as it will direct resources to areas it determines to be high risk. Consultees conveyed that the position taken in many of these circumstances therefore relies on the risk appetite of the individual; however, the risk can be reduced by obtaining compelling specialist tax advice. Consultees noted that much of this advice is provided in the absence of a private ruling from the ATO. It was suggested that this undermines the equity of the residency rules as individuals could residency ‘shop’ for the most preferential outcome, should they be able to afford the advice. Consultees noted that, in their experience, in addition to conscious manipulation of the residency rules, the interpretative undertaking of the residency tests can lead to reasonable positions being taken that vary significantly dependent not only on the underlying facts and circumstances, but also on the individual or adviser’s understanding of judicial and administrative guidance.
T307956-income-tax-res-rules.docx