Australian Tax laws for Residents and Non-Residents
Are you an Australian resident for tax purposes? This is an important question for anyone newly arrived and working in Australia, and for any Australian citizens living overseas. Knowing the answer can make a big 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 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 holiday maker, 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.
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.