Australia’s legislative definition of tax residence has remained unchanged since 1936. New Zealand amended its legislative definition in 1988. This article examines specifically the concept of the tax residence of individuals in the 21st century in light of Interpretation Statement IS16/03, a comprehensive guideline issued by New Zealand’s Inland Revenue on 20 September 2016. This interpretation statement demonstrates New Zealand’s increased objectivity in its definition. In addition, this article answers the question of whether a relatively minor change similar to that in New Zealand would be possible in Australia for the benefit of both the revenue and taxpayers.
In New Zealand, the permanent place of abode test was amended in 1988 so that an individual will be resident, despite any other provision, if the individual has “a permanent place of abode in New Zealand, whether or not they have a permanent place of abode outside New Zealand”. This amendment focused the test on the individual’s connections with New Zealand, rather than whether the individual had closer connections with New Zealand or another country. This made it more difficult to lose New Zealand residence.48 This emphasis was reinforced by extending the number of days test to be a non-resident from 183 to 325 days. Given that the Australian superannuation test should be reviewed, particularly in light of potential discrimination, it would be timely to simplify the Australian definition of residence for individuals using the New Zealand model. The advantage of using the New Zealand model is also that most of the case law applicable in Australia would remain relevant. A changed definition would have less impact than many definitions rewritten as part of the Australian 1997 Income Tax Assessment Act. The New Zealand public
service definition provides a simple and modern approach to ensuring that public servants working overseas are treated as residents.
The different components of the New Zealand definition, if applied in Australia, would retain the substance and intention of the Australian definition, albeit that in making the rules more objective, they would support the Australian Taxation Office in identifying and acting to prevent tax avoidance. They would modernise the law to suit a world in which individuals are far more mobile. A clearly objective standard, moderated by the opportunity for taxpayers to show that their circumstances support a decision by the Commissioner not to treat them as resident, balances the principles of certainty and fairness. The balance will never be perfect. However, the overall effect would not only make the law simpler, clearer and more efficient but, based on the cases discussed above, fairer for taxpayers.