17/12/2025 • 16 min read
Residency Test Reform 2025: Home or Away?
Residency Test Reform 2025: Home or Away?
Australia’s individual tax residency framework must be reformed because the current “home or away” analysis is legally complex, fact-heavy, and increasingly misaligned with modern work patterns (remote work, fly-in-fly-out, digital nomads, and internationally mobile executives), producing inconsistent outcomes, high compliance costs, and heightened ATO dispute risk for Australian accounting practices and their clients. From a practice perspective, it is established that the common law tests—particularly “resides” and “domicile/permanent place of abode”—often turn on subjective indicators (intentions, “settled purpose”, family ties), which is precisely why clearer, more objective rules are regularly called for.
What does “home or away” mean in Australian tax residency practice?
“Home or away” is shorthand for the central practical question accountants and the ATO ask when applying residency: is the taxpayer’s life sufficiently anchored in Australia such that Australia is still “home”, or have they genuinely relocated such that they are “away” and no longer an Australian resident for tax purposes.
In law, the phrase does not replace the statutory tests; it reflects how the facts are weighed under the existing framework in the Income Tax Assessment Act 1936 (ITAA 1936), particularly section 6(1) (definition of “resident”).
From an Australian accounting practice lens, “home” is typically evidenced by durable living arrangements and ongoing ties, while “away” is usually evidenced by a genuine, sustained relocation with establishment of life elsewhere.
What are the current Australian tax residency tests (and why are they hard to apply)?
Australia currently determines individual residency using four main tests under ITAA 1936 section 6(1). The difficulty is that multiple tests can apply simultaneously, and several rely on evaluative judgement rather than objective thresholds.
What is the “resides” test?
A person is an Australian resident if they “reside” in Australia according to ordinary concepts.
In practice, this is the most litigated and subjective test because it requires a holistic evaluation of behaviour and circumstances (not merely days in-country).
- ATO guidance on “Work out your tax residency” and residency factors (ATO website)
- Taxation Ruling TR 2023/1, which consolidates the ATO view on residency for individuals (resides test and related concepts)
- Physical presence and routine: pattern of living, not just travel dates
- Purpose of presence or absence: working temporarily vs relocating
- Family and social ties: spouse/partner, children, community connection
- Living arrangements: owned/leased home, use of accommodation, continuity
- Economic ties: employment, business, assets, Australian bank/credit usage
What is the “domicile and permanent place of abode” test?
A person whose domicile is in Australia is a resident unless the Commissioner is satisfied their “permanent place of abode” is outside Australia.
- “Permanent” does not necessarily mean “forever”
- “Place of abode” is more than an address; it concerns how someone lives
- Intention and the reality of living arrangements can point in different directions
- retains a family home in Australia
- returns frequently
- keeps spouse/children in Australia (or returns them to Australia for schooling)
- treats the overseas arrangement as temporary or “trial”
What is the 183-day test?
Broadly, if present in Australia for more than 183 days in an income year, a person may be a resident unless their usual place of abode is outside Australia and they do not intend to take up residence in Australia.
Practically, this test can surprise inbound assignees and returning Australians, because “days” can be easier to measure but the carve-out still requires judgment about “usual place of abode” and intention.
What is the Commonwealth superannuation test?
Certain Australian Government employees (and relevant spouses/children) are residents regardless of ordinary concepts.
For practices, this is usually a clear test, but it must be checked early because it overrides the intuitive “home or away” narrative.
Why does the residency test need reform in 2025?
Reform is warranted because the existing residency architecture is not sufficiently certain, scalable, or contemporaneously fit for purpose, especially for modern mobility.
What practical problems do accounting firms see under the current rules?
Australian practices experience recurring, costly issues including:
- Fact-heavy, document-heavy determinations
- High dispute risk
- Inconsistent outcomes
- Retrospective uncertainty
Why is “intention” a flawed anchor for the system?
It should be noted that intention is easy to assert and difficult to verify, and it can change over time. Modern arrangements (remote work, “try-before-you-move”, split families) mean that the “home” question becomes ambiguous even when the taxpayer acts in good faith.
- evidentiary disputes
- inconsistent advice outcomes across advisers
- ATO review and objection volumes
What reform options are most relevant for Australian accounting practices?
A reformed model should prioritise objectivity, administrability, and integrity. In practice, the most useful reforms are those that reduce reliance on subjective intention and provide clearer outcomes earlier.
Common reform directions discussed in professional circles typically include:
- Clearer primary tests using objective thresholds
- Codified “tie-breaker” factors
- Better alignment with Double Tax Agreements (DTAs)
- Transitional rules
While policy design is for Parliament, from an accounting practice view the critical requirement is predictable classification outcomes that can be evidenced contemporaneously.
How does ATO guidance currently frame residency (and what should you rely on)?
The ATO’s published guidance and rulings are central to defensible advice and file notes. As of December 2025, practitioners should closely consider:
- ITAA 1936 section 6(1) (statutory definition and tests)
- TR 2023/1 (ATO view on residency for individuals, including “resides” and “domicile/permanent place of abode” concepts)
- ATO online guidance on tax residency (practical factors and examples)
In contentious matters, case law is also material, but for day-to-day practice management the ATO’s current ruling (TR 2023/1) is the baseline reference for explaining the Commissioner’s position and framing evidence.
What are the highest-risk “home or away” scenarios in real client work?
The following scenarios commonly generate ATO scrutiny or produce uncertain outcomes:
- Remote worker “living overseas” while keeping an Australian home
- Family split arrangements
- Fly-in-fly-out or rotational work
- Inbound assignees with long stays
- Returning Australians who “test the waters”
From an engagement-risk perspective, these cases require structured evidence collection and contemporaneous documentation, not retrospective narratives.
How should Australian accountants evidence “home” versus “away” in a defensible file?
A defensible residency position is built on evidence that demonstrates the reality of the person’s living arrangements and ties over time.
What evidence supports “Australia is still home”?
- Accommodation availability in Australia
- Family base remains Australia
- Continuity of Australian life
- Frequent and regular returns
What evidence supports “genuinely away / relocated”?
- Long-term accommodation established overseas
- Family unit relocated
- Australian home not available
- Local integration
- Clear employment and visa settings
It is prudent to document not only what happened, but why, and to maintain a timeline that can be reconciled to passport stamps, travel records, and leases.
What are practical examples of “home or away” outcomes?
Example 1: Australian executive seconded to Singapore, family stays in Sydney
- spouse and children remain in Australia
- Australian accommodation remains available
- frequent returns occur and life remains anchored in Australia
Even if the executive spends substantial time offshore, “home” factors can outweigh days.
Example 2: Tech contractor relocates to the UK, leases Australian home commercially
- the Australian home is leased on arm’s length terms for an extended period
- a stable overseas living arrangement is established
- the pattern of return travel is limited and consistent with visiting rather than living
Example 3: Digital nomad rotating countries without establishing a base
- there may be no “permanent place of abode” anywhere
- ties to Australia may persist by default (banking, Medicare, super, family)
- intention is fluid and evidence is thin
In practice, uncertainty is high and reform toward objective thresholds would materially assist this cohort.
How should firms manage compliance risk until reform occurs?
Until legislative reform occurs, firms should standardise residency processes and documentation to reduce inconsistent advice and protect against ATO review.
- Run a residency triage at onboarding and annually
- Maintain a “residency evidence pack”
- Use structured file notes aligned to TR 2023/1
- Stress-test for dual residency and DTA outcomes
- Escalate high-risk cases
How can accounting automation help with residency evidence and compliance workflows?
Residency matters are evidence-driven and workflow-heavy. Practices typically waste time gathering, reconciling, and presenting documentation across systems.
- client timelines and checklists
- document capture (leases, travel exports, ATO correspondence)
- reconciliation and workpaper production for Australian compliance obligations that continue regardless of residency complexity (e.g., investment income, Australian-sourced income, GST/BAS where applicable)
This is where accounting automation platforms can reduce administrative load, particularly around working papers and year-end packs.
Next Steps: How Fedix can help (and where MyLedger fits)
Fedix helps Australian accounting practices reduce the time spent on manual compliance workflows that sit alongside residency work—especially reconciliations and workpapers—so senior staff can focus on high-judgement issues like “home or away” residency positions.
- complete automated bank reconciliation significantly faster (commonly 10–15 minutes rather than 3–4 hours per client in traditional workflows)
- streamline BAS reconciliation and working paper preparation (including Australian-specific areas such as Division 7A and MYR schedules)
- centralise supporting files and client evidence to support ATO-ready documentation standards
If your practice is handling internationally mobile clients, consider standardising your residency evidence pack and automating the repeatable compliance tasks around it. Learn more at home.fedix.ai.
Conclusion: Why “home or away” points to reform
The current Australian residency tests remain workable but inefficient and uncertain because they depend heavily on subjective “home” indicators and intention, which do not reflect modern mobility. From an Australian accounting practice perspective, reform should prioritise objective thresholds, clearer tie-breakers, and predictable interaction with treaty outcomes, reducing ATO disputes and compliance cost while maintaining integrity.
Disclaimer: Tax residency is highly fact-specific and outcomes depend on individual circumstances, applicable legislation, ATO rulings, and relevant case law. Tax laws and ATO guidance are subject to change. Professional advice from a qualified Australian tax practitioner should be obtained for any specific situation.