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 have newly arrived and are working in Australia, or you are 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 circ*mstances 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.
WHY DOES IT MATTER?
It is important to determine your residency status for tax purposes as the law treats residents, foreign residents and temporary residents differently. Australian residents are generally taxed on income from all sources worldwide. Foreign residents and temporary residents are taxed only on income and gains sourced in Australia, such as Australian wages, Australian business income or capital gains on Australian land and buildings.
Foreign residents are not entitled to the tax-free threshold and pay tax on their Australian income up to $120,000 at a rate of 32.5%, meaning the effective tax rates are higher for foreign residents.
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.
TAX RATES FOR RESIDENTS AND NON-RESIDENTS
Read the tax rates applied to residents, foreign residents and working holiday makers.
ADVANTAGES AND DISADVANTAGES
Foreign residents generally do not pay the Medicare levy (as they 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 you’re bank with an overseas address otherwise taxmay be withheld by your financial institution at a much higher rate.
DETERMINING RESIDENCY
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)
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.
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
