Australian Laws for Residents and Non-Residents

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 means someone who has always lived in Australia, or has come to Australia to live with the intention of staying for the foreseeable future.

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? Good question. To figure it out, you need to do a residency test to know if you’re:

• 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, no need to pay the Medicare levy and only declare tax on income and gains derived in Australia), 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)

• The 183 Day Test (you are present in the country for more than 50% of the tax year)

• 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 $37,000 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 Australian residents and tax residents. The Australian Tax Office also has to help you figure out if you’re an Australian resident for tax purposes.

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 $37,000, and the effective tax rates are much higher for non-residents.

If you think you need help to work out if you are resident or not, H&R Block can help you. Call us on 13 23 25.

AUSTRALIAN RESIDENTS

If you are an Australian resident and you have to lodge a tax return, you need to declare your worldwide income.

NON-RESIDENTS

If you are a non-resident, you only need to lodge a tax return if you have income that is taxable in Australia.

From 1 January 2017, tourists working in Australia only for a short time are not considered residents and are subject to a special tax regime (see below). Such working holidaymakers still need to lodge a tax return if they have income from an Australian source.

RESIDENT TAX RATES

Read the tax rates applied to residents for tax purposes, and to non-residents from the ATO.

ADVANTAGES AND DISADVANTAGES

Non-residents 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. The interest is not included in assessable income, but you will need to provide an overseas address otherwise tax will be withheld at a much higher rate.

If you think you need help to work out if you are resident or not, H&R Block can help you. Call us on 13 23 25.

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.