Are you a resident of Australia for tax purposes? It might sound like a simple question, but it can be surprisingly difficult to figure out the answer if you are newly arrived and working in Australia, or an Australian resident living overseas. But knowing the answer to this question can make a huge difference to the amount of tax you need to pay. And your status can change if your personal circumstances change – so it's important to stay informed!
Being an Australian resident for tax purposes is not necessarily the same as being an Australian resident for other purposes. Generally, an Australian resident for tax purposes is someone whose usual place of abode is in Australia.
You don't need to be an Australian citizen or a permanent resident for immigration purposes to be considered a tax resident. And you can also be an Australian citizen and be considered a foreign resident for tax purposes.
So, am I an Australian resident for tax purposes? To find the answer, do a residency test. This will help you understand whether you are :
- An Australian resident for tax purposes (this means you have to declare all of your income from all sources worldwide),
- A foreign resident (this means you have no tax-free threshold, only declare tax on income and gains derived in Australia and may not have to pay the Medicare levy), or
- A temporary resident (this means you usually only have to declare income and gains arising in Australia).
To be resident, you need to pass the 'resides' test, meaning that your usual place of abode is in Australia.
Amongst the things that will be taken into account to determine whether you pass the 'resides' test are:
- The intention and purpose of your stay in Australia
- Your family and business/employment ties
- Where most of your assets are located
- Where you live and where you socialize
- Whether you are physically present in Australia
If you fail the 'resides' test, you may still be resident in Australia if you meet one of the following three tests:
- The Domicile Test (your domicile, or permanent home by law, is in Australia and you don't have a permanent place of abode overseas)
- The 183 Day Test (you are present in the country for more than 50% of the tax year and don't have a usual place of abode overseas)
- The Commonwealth Superannuation Fund Test (you're an Australian Government employee working at an Australian post overseas and a member of a government superannuation scheme)
Note that if you're a working holidaymaker, you'll usually be considered a foreign resident for tax purposes and taxed at a rate of 15% on the first $45,000 you earn in Australia, with the balance then taxed at ordinary rates.
If you're a dual resident of both Australia and a foreign country with which Australia has a double tax treaty, a treaty tie-breaker test will be used to work out which country has the right to charge you tax.
To help you understand your status, and the factors that might influence it, check out these helpful examples of when you might (or might not) be Australian resident.
WHY DOES IT MATTER?
The law treats residents and non-residents differently. Australian residents are generally taxed on all of their worldwide income. Non-residents are taxed only on income sourced in Australia. The marginal tax rates are different for income below $45,000, meaning that effective tax rates are higher for non-residents.
If you are an Australian resident and you have to lodge a tax return, you need to declare your worldwide income.
If you are a non-resident, you only need to lodge a tax return if you have income that is sourced in Australia, such as wages, business income or capital gains on Australian land and buildings.
TAX RATES FOR RESIDENTS AND NON-RESIDENTS
Read the tax rates applied to residents and non-residents.
ADVANTAGES AND DISADVANTAGES
Non-residents generally do not pay the Medicare levy (and so cannot claim Medicare benefits), and will have 10% of any interest earned from Australian bank accounts withheld for tax. This interest is not included in assessable income, but you will need to provide your bank with an overseas address otherwise tax will be withheld by your financial institution at a much higher rate.
CALCULATE YOUR TAX REFUND
Calculate the tax refund you could receive after tax deductions with H&R Block's easy-to-use, accurate tax refund calculator.
If you have any doubt at all about your status, we strongly advise you to consult one of our professional tax agents at H&R Block. Our expert advisers are here to help you, and we'll support you through the process every step of the way.
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