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The 2026-27 Federal Budget has prompted many Australians to reconsider where they hold their wealth. The 50% CGT discount is being replaced from 1 July 2027, a 30% minimum tax on discretionary trusts is proposed from 1 July 2028, and negative gearing is being confined to new builds. For business owners and investors, a move offshore (to Dubai in particular) has become a live option. We have seen a marked increase in enquiries about relocating since the Budget.
Relocating is a legitimate choice. The difficulty is that leaving Australia and ceasing to be an Australian tax resident are different questions. A person can live and work overseas for years, pay no tax in the new country and still remain an Australian resident for tax purposes.
The Residency Tests
A person is a resident of Australia for tax purposes if they satisfy any one of four tests in subsection 6(1) of the Income Tax Assessment Act 1936:
1. the ordinary meaning of the word ‘resides’;
2. the domicile test;
3. the 183-day test; and
4. the Commonwealth superannuation test.
Generally, the first two tests are most relevant to a person leaving Australia. The 183-day test is widely misunderstood. It can make a person a resident if they are present in Australia for more than half the income year. Importantly, it says nothing about a person who is absent for more than half the year and absence from Australia does not displace the other tests. The taxpayer bears the burden of proving that residency has ceased so it pays to get it right.
Two tests, two different kinds of intention
Intention matters under both tests, but the intention in question differs.
Under the ordinary meaning of ‘resides’, the question is whether the person has a continuity of association with a place in Australia, an intention to return to it and an attitude that it remains home. The intention need not be to remain permanently or indefinitely.
Under the domicile test, a person whose domicile is in Australia remains a resident unless the Commissioner is satisfied that their ‘permanent place of abode’ is outside Australia. The Full Court of the Federal Court in Harding v Commissioner of Taxation [2019] FCAFC 29 explained that ‘permanent’ here does not require an intention to live outside Australia indefinitely. It requires that the person has abandoned their residence in Australia, intends to reside outside Australia, and in fact does so, as distinct from having a place of abode overseas that is merely ‘temporary or transitory’.
This distinction matters in practice. Confusing the two intentions was the error that sent Quy back to the Tribunal the first time.
Quy v Commissioner of Taxation
Mr Quy was a senior engineer with a long-standing Australian employer. In 2015 he accepted a position in Dubai and relocated. He remained there for about five years, living in an apartment leased by his employer’s Dubai entity, with a car, employer-sponsored residency permits and a church community. His wife and daughters lived for most of that period in the family home in Perth, which he retained along with Australian bank accounts, vehicles, his driver's licence, superannuation and investment properties.
The Tribunal first found that he was a resident under both the ordinary concepts test and the domicile test. Mr Quy appealed and won. In Quy v Commissioner of Taxation (No 3) [2024] FCA 726, the Federal Court held that the Tribunal had wrongly imported the domicile notion of intention (i.e. an intention to remain permanently or indefinitely) into the ‘resides’ test and had also misunderstood ‘permanent’ in ‘permanent place of abode’. The decision was quashed and the matter remitted.
On remittal, the Tribunal applied the correct tests and found that Mr Quy did not reside in Australia. It was common ground that he had retained his Australian domicile and the Tribunal was not satisfied that his permanent place of abode was in Dubai. It said:
The question of whether a person has a permanent place of abode outside Australia goes beyond whether they can demonstrate that they were living, working and socialising in another place, even for an extended period of time. They must demonstrate that they have abandoned their residence in Australia, and established a place where they are residing permanently (rather than on a temporary basis, even if not indefinitely).
Mr Quy appealed again and the Federal Court recently dismissed the appeal in Quy v Commissioner of Taxation [2026] FCA 1316. The Court accepted that different minds might reach different conclusions on the facts, but held that the Tribunal had applied the correct principles and that its conclusion was open to it.
An appeal from the Tribunal is confined to questions of law, so the Federal Court could intervene only for legal error and could not revisit the facts. No legal error was demonstrated. Mr Quy therefore won on the law and lost on the facts. Accordingly, his Dubai earnings for the 2016 to 2020 income years were taxable in Australia.
Why the retained connections mattered
The Tribunal accepted that Mr Quy’s return trips to Australia were visits, that it was reasonable for his daughters to remain in Perth to complete their studies and that his employment arrangements were consistent with him not treating Australia as home. Those findings were outweighed by what he had kept.
The ties that had not been severed included a family home kept available and occupied by his family, vehicles kept registered (for sentimental reasons and for his use when in Australia), a Western Australian driver’s licence maintained, personal belongings left in the home, salary and superannuation paid into Australian accounts, and investment property retained.
The Dubai arrangements themselves were treated as equivocal.The apartment was leased in the name of the employer’s Dubai entity, the residency permits were employer-sponsored and issued for 24 months at a time, and the belongings he had taken were consistent with a longer-term stay but not necessarily a permanent one. The Federal Court observed that the Tribunal appears to have regarded a working life spent moving between postings for the same employer as somewhat ‘itinerant’ or ‘peripatetic’ in nature, which told against a deliberate abandonment of Australia.
The contrast with Harding, where a taxpayer in broadly similar circumstances succeeded on a clear and unchallenged intention to leave permanently, is examined in our article on permanent place of abode.
What ceasing residency does not achieve
Even where residency has ceased, Australian tax does not disappear. A foreign resident remains assessable on Australian-source income including rent from Australian property and pays tax on it from the first dollar at foreign resident rates (starting at 30 cents in the dollar with no tax-free threshold). Australian real estate remains within the CGT net regardless of where the owner lives. A person who sells their former home while a foreign resident will generally be denied the main residence exemption. The position of foreign residents has tightened in recent years.
Ceasing residency addresses future foreign income and gains. The treatment of assets and income left behind is unchanged, and it offers no route around the CGT changes on Australian property.
The exit itself has tax consequences
Ceasing to be a resident is a CGT event. CGT event I1 happens when an individual stops being an Australian resident. The individual is treated as having disposed of each CGT asset that is not taxable Australian property (such as shares and foreign assets) at market value. An individual may instead choose to defer the gain, in which case the assets are treated as taxable Australian property and remain within the Australian CGT net until they are actually disposed of, or the individual again becomes a resident.
Either way, the departure date matters and the choice should be made deliberately. For a person holding a substantial share portfolio or a business, this decision can be as significant as the residency question itself.
The Quy takeaways
For a person planning to leave, the timely decision in Quy serves as a great reminder to settle the following matters before departure:
· The decision to leave has to be a decision to end residence in Australia and conduct has to match it. Years spent working abroad will not, by themselves, end residency;
· Where the family will live is usually decisive. A family home kept available to you (with a spouse and children in it) is the most common reason a residency position fails;
· Everyday connections need to be dealt with and the overseas arrangements need to look permanent. Close or run down accounts that are not needed, dispose of or transfer vehicles, let licences and memberships lapse (where appropriate) and remove personal belongings. Where you rent overseas, take the lease in your own name. The declarations you make when you enter Australia (on incoming passenger cards or travel declarations) should be consistent with the position you intend to take;
· Structure should change with residency and it takes time. Wealth and business left in an Australian trust achieve little once you have left. Moving the people who control a trust offshore can also changethe trust’s own tax position. The Budget’s proposed three-year rollover from 1July 2027 for moving assets out of discretionary trusts may be relevant to the sequencing;
· Australian property and Australian-source income stay taxable. That should inform what you keep and what you sell. Exit tax on any other assets should be worked out before the departure date is fixed.
Need help?
If you are considering a move overseas and would like assistance with your residency position, or with putting your affairs in order before you leave, feel free to contact our team or send us a confidential enquiry.
Disclaimer: This material is produced by Cadena Legal, a Queensland-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such.
