Moves that could classify tourists and business travellers who spend more than 45 days in Australia as tax residents risk stifling economic activity by discouraging visitors, the Albanese government has been warned.

The government is consulting about plans in the 2021 federal budget to dramatically simplify outdated and clunky individual tax residency rules that govern who has to pay tax and lodge annual returns with the Tax Office.

Included is a new primary ‘‘bright line’’ test that would result in individuals treated as Australian tax residents if they are in the country for 183 days in a year.

But moves to update residency rules designed in the 1930s risk catching tourists and business travellers who spend more than 45 days in Australia, under a proposed secondary test.

Institute of Public Accountants general manager for technical policy Tony Greco said it could act as a disincentive for some foreign workers, tourists and other short-term travellers, potentially hurting economic activity.

Other factors to be considered as part of tax residency rulings include the right to reside permanently in the country, close family ties here, access to accommodation, and Australian economic interests.

Mr Greco said it would also breach the principle of adhesive residency, which provides that it should be harder to stop being an Australian tax resident than to become one.

The 45-day test was recommended because it is longer than the traditional annual leave period of four weeks. The median stay in Australia for tourists and other short-term visitors is 11 days and all but a few short-term visitors stay for less than two months.

IPA has recommended a 90-day secondary test. In New Zealand, individuals cease to be a tax resident if they spend less than 40 days in the country. Britain uses a 46-day test.

‘‘We say 45 days is too low a threshold because then it reverts you back into those subjective tests that we’re currently having trouble with,’’ Mr Greco said.

‘‘Maybe the bar is too low. It is going to suck in too many players if you strike at 45 days. You’re quickly back into the complexity of the old scheme.’’

He said the case for change was strong, describing the current tax residency rules for individuals as outdated and incompatible with the modern world, where increased global mobility, advances in technology and changing social norms had shifted the goal posts.

‘‘What we do know is private binding rulings for residency are going through the roof because it’s so subjective and it’s litigated. The definitions that are used are quite subjective and you have to do a fact-based analysis to actually come up with an arguable position.’’

Treasury said the 45-day proposal predated the COVID-19 pandemic and could be revised. It argues a strict day count ‘‘ensures that residency outcomes are clear, the rules are administrable, and disputes are avoided’’.

When first announced, the then Coalition government estimated the new rules would deliver regulatory savings of about $110 million a year.

BDO’s national tax leader, Lance Cunningham, said 90 days would better accommodate skilled workers and Australians working abroad.

‘‘Where individuals flying in and out of Australia for business purposes may be subject to the commencing residency rules, this may prove unattractive to businesses overseas in sending skilled workers to Australia for special projects or short-term employment,’’ he said. ‘‘As an example, mergers and acquisitions, change management, global expansions and specific short-term projects might exceed the 45-day period.

‘‘For example, an ex-Aussie resident who may be ideally skilled to return to Australia for a short-term project but is reluctant due to fears of being deemed a resident due to satisfaction of the 45-day requirement along with two other factors, such as right to reside, legacy Australian economic interests.

‘‘Increasing the 45-day period to 90 days will provide an incentive for business travellers and holidaymakers to stay in Australia for longer without fear of compromising their tax residency status. Longer stays may result in an increased economic contribution to the Australian economy, particularly tourism expenditure.’’