Recommendation 10 Subject to the Government’s current immigration review, the Board recommends that: temporary resident tax concessions should be amended such that the concessions are not available where an individual has been in Australia for more than 4 years; and should the Government adopt the Board’s modernisation recommendations, temporary residents should be subject to nonresident income tax rates. Recommendation 11 The Board recommends that the Government consider a review in relation to the interaction and possible alignment of the individual tax residency rules and Australia’s immigration visa regime. The Board considers that this may benefit from the work undertaken during the Government’s current immigration review. Annexure B Observation 4 The Board observes that payment and reporting systems for many visa holders remain substandard. This issue has been raised with the Black Economy Taskforce. Observation 5 Consistent with the Government’s regulatory reform agenda, the Board considers that the information supplied to the Department of Immigration and Border Protection to obtain a visa, where the person has the right to work in Australia, should be available to the ATO to facilitate the automatic generation of an application for a tax file number. Observation 6 The Board notes that consultees raised concerns regarding the lack of harmonisation and potential for manipulation of the tax residency rules and access to other Government services. The Board observes that the Government should commission a review of how individuals that reside overseas continue to access Government services but are not subject to tax as Australian residents. Observation 7 The Board observes that while some individuals may seek to manipulate CGT event I1, the Board considers that the ATO should increase its compliance efforts to identify ‘deemedTAP’ assets that should be taxable in Australia. The Board suggests any assets which taxpayers have elected to be deferred as a ‘deemed disposal’ upon ceasing residency should be catalogued and reported to the ATO to use as a reference point for the tracking of any future disposal of such assets. This could be incorporated as part of the annual tax return process.
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.