What Is the Resides Test? A Guide to Australia’s Primary Residency Test

Introduction

When you move your business offshore, the critical question is whether you actually cease to be an Australian resident for tax purposes. The answer is primarily determined by the ‘resides test’, which relies on the ordinary meaning of ‘reside‘ rather than a fixed legal definition, meaning no single factor determines the outcome.

This article explains how the resides test works for Australian business owners, how it has been interpreted by the courts, & where it produces unexpected results. Understanding this is crucial, as your overall connection to Australia can mean you are still treated as an Australian tax resident long after you believe you have departed.

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What Is the Resides Test

The resides test is the primary test for determining if you are a resident of Australia for tax purposes. It is an “ordinary concepts” test, which means it relies on the common understanding of what it means to reside somewhere, rather than a strict legal formula.

Under subsection 6(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936), a person who resides in Australia is considered a resident. The critical term “resides” is not defined in the legislation, which is where uncertainty can arise for Australian business owners.

Instead, its meaning comes from the courts, which have defined it as to “dwell permanently or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place.” This is directly contrasted with a physical presence in Australia that is merely temporary & casual.

The Australian Taxation Office (ATO) provides its current interpretation of the residency tests for individuals in Taxation Ruling TR 2023/1. This ruling is the authoritative guidance that explains how the ATO applies the resides test & other residency tests in practice.

How “Resides” Is Actually Interpreted

The Factors the ATO & Courts Consider

For Australian business owners, understanding the resides test means looking at the overall picture of their life, not just one element. The central principle is that no single factor determines the outcome; it is the total strength of the connection to Australia that matters.

The ATO & courts examine a range of factors to build this picture, including:

• Physical presence in Australia: the continuity, regularity, & duration of time spent in the country
• Nature of presence: whether the time spent is consistent with residing in Australia or merely visiting
• Intention & purpose: the reasons for being in Australia, supported by objective evidence
• Family, business & employment ties: the location of immediate family & the centre of economic life
• Maintenance & location of assets: where key assets like a home, vehicles, & bank accounts are kept
• Social & living arrangements: connections to the community, such as club memberships or children’s schooling

Two business owners with similar fact patterns can have different tax residency outcomes if their intentions, motivations, or life circumstances differ.

Why Physical Presence Alone Does Not Settle the Question

Australian business owners often assume that spending a specific number of days offshore automatically breaks their Australian tax residency. This is a critical misunderstanding of the resides test. While your period of physical presence is an important factor, it is not determinative on its own.

The ATO looks beyond a simple day count, considering the entire income year & surrounding years for evidence of your connection to Australia. A business owner who spends most of the year working overseas but maintains a family home in Australia, returns regularly for significant events, & keeps their main economic & social ties here may still satisfy the resides test. This means that despite being physically absent, that business owner is still treated as an Australian tax resident & remains subject to tax on worldwide income. 

How the Resides Test Sits Alongside the Other Residency Tests

The resides test does not operate in isolation. It is the first step in a broader framework of four alternative tests for individual tax residency set out in subsection 6(1) of the ITAA 1936. An individual is an Australian resident for tax purposes if they satisfy any one of these tests.

The four residency tests are:

1. The ordinary concepts test: this is the resides test, which relies on the ordinary meaning of “resides”.
2. The domicile test: this test is generally relevant for individuals who have been living in Australia but are currently overseas.
3. The 183-day test: this test primarily applies to individuals who were not previously resident & have entered Australia during the year.
4. The Commonwealth superannuation fund test: this is a specific test for certain Australian government employees working overseas.

If an individual satisfies the resides test, they are an Australian tax resident & the other three tests do not need to be considered. However, failing the resides test does not automatically make someone a non-resident. If a person does not reside in Australia under ordinary concepts, the remaining three statutory tests must still be applied, & an individual is only a non-resident if they fail to meet the criteria of all four tests.

An individual who has moved offshore & no longer “resides” in Australia may still be an Australian tax resident under the domicile test if their domicile remains in Australia & they have not established a permanent place of abode overseas. 

Where the Resides Test Produces Unexpected Results

Still a Resident After Leaving — the Most Common Surprise

Australian business owners who believe they have relocated offshore can still satisfy the resides test if their ongoing ties to Australia remain strong. This is a frequent & costly surprise for those who focus only on their time spent outside the country.

TR 2023/1 illustrates this exact scenario. A business owner takes a two-year work assignment overseas but leaves their family in the Australian home, returning as often as leave permits. Despite the extended physical absence, their behaviour is not consistent with severing Australian residency.

Behaviours that point to ongoing residency in this scenario include:

• maintaining the family home in Australia;
• returning regularly to a settled family life; and 
• keeping Australian bank accounts.

As a result, the business owner is still treated as an Australian tax resident, & their worldwide income remains subject to Australian taxation, regardless of how long they have been offshore.

Not a Resident Despite Being in Australia

The resides test can also produce the opposite outcome. A person physically present in Australia whose presence is temporary, fluid & casual may not satisfy the resides test at all, as the nature & purpose of the presence matters as much as its duration. As confirmed in Commissioner of Taxation v Addy [2020] FCAFC 135 (‘Addy’), even an extended stay does not automatically create residency. 

How Recent Case Law Has Shaped the Test

Harding — Ceasing Residency Despite Regular Returns to Australia

For Australian business owners living & working offshore, the key question is whether your life is still centred in Australia & Harding v Commissioner of Taxation [2019] FCAFC 29 (‘Harding‘) shows how that question gets answered in practice. In that case, an Australian national worked & lived in temporary accommodation in Bahrain while regularly returning to Australia to visit his family. The court determined he had ceased to be an Australian tax resident.

The practical takeaway is that a settled pattern of living & working offshore can break tax residency, even if the overseas dwelling is not a permanent house. Regular return visits do not automatically maintain residency if the person’s life is genuinely based elsewhere.

Pike — Maintaining Residency Despite Living Overseas

Commissioner of Taxation v Pike [2019] FCA 2185 (‘Pike‘) is a critical warning for business owners whose families remain in Australia during an offshore move. In that case, a Zimbabwean citizen living & working in Thailand was held to be an Australian tax resident under the ordinary concepts test, because he returned regularly to his de facto partner & child in Australia.

Maintaining an established family & social life in Australia can be enough to preserve your Australian tax residency, even while you are living & working in another country.

Addy — Not a Resident Despite an Extended Stay in Australia

Duration of stay is not the only factor that matters – the nature & purpose of a person’s connection to Australia matter just as much. In Addy, a UK national on a working holiday visa was found not to be an Australian tax resident despite an extended stay, because the court found the fluid & temporary nature of her connection to Australia was more like an extended holiday than residing here.

How to Make the Resides Test Work

Building a Genuine Life in the New Jurisdiction

For Australian business owners, ceasing to be a resident for tax purposes requires more than just leaving the country. It involves actively establishing a new life overseas that is inconsistent with still residing in Australia. The pattern of behaviour over time matters as much as any single decision, demonstrating a clear shift in where your life is centred.

This means taking concrete steps to build a durable connection to the new jurisdiction. Key actions include:

• Establishing a home – whether you rent or purchase a property, setting up a genuine home base where you & your family live is a critical factor.
• Building new connections – this involves creating genuine social ties, joining local organisations, & establishing new economic interests in the new country.
• Working & living with routine – relocating your work or business operations, generating income, & establishing a day-to-day life overseas shows a settled purpose.

Reducing Australian Ties Deliberately and Documentably

Successfully breaking Australian tax residency requires a deliberate & evidenced reduction of your connections to Australia, which is the core of effective strategic residency planning. The ATO gives weight to objective circumstances surrounding your departure, looking at what arrangements were made, what assets were taken, & what was left behind.

Australian business owners should focus on making their departure intentional & provable. This includes:

• Addressing the family home – selling the home or leasing it to an unrelated party on commercial terms can reduce its significance as a tie to Australia.
• Managing return visits – the pattern & purpose of any returns to Australia should be consistent with visiting, not with resuming a life here.
• Documenting your intention – contemporaneous records, such as visa documents, passenger cards, & correspondence showing an intention to relocate permanently, are valuable evidence.

The ATO examines surrounding income years to assess residency status. This means the record of your behaviour before, during, & after your departure is crucial in demonstrating a genuine & lasting change in your circumstances.

Conclusion

Determining Australian tax residency under the resides test is a holistic assessment of your life’s connections to Australia, where the pattern of behaviour over time matters as much as any single decision. The pattern of behaviour over time, not any single decision, is what determines whether a business owner has genuinely ceased to reside in Australia. 

Before you act on your residency position, discuss your situation with WealthSafe’s strategic residency planning specialists. That way, your international structure stays legal, defensible, & aligned with how your life & business really run.

Frequently Asked Questions