Non-Resident Tax in Australia (2024)

In Australia, the rate at which you are required to pay tax will be different depending on your residency status. If you are an Australian resident for tax purposes, you will pay a different tax rate to someone who is a foreign resident or non-resident for tax purposes. This article deals with non-resident tax in Australia.

What is the rate of non-resident tax in Australia?

The foreign resident tax rate or non-resident tax rate changes each financial year.

The current foreign resident tax rates or non-resident tax rates (for the 2020-2021 tax year) are as follows:

• [0 – $120,000] 32.5 cents for each $1
• [$120,001- $180,000] 37 cents for each $1 over $120,000
• [$180,001 and over] 45 cents for each $1 over $180,000

These tax rates are generally higher than the rate of tax you would pay if you were resident in Australia. However, unlike Australian residents, if you are a non-resident for tax purposes, you will not be required to pay the Medicare levy. If you are an Australian resident for tax purposes, you are required to pay tax on your Australian income as well as your foreign income. Whereas, if you are a non-resident for tax purposes, you are only required to pay tax on the income you earned in Australia. However, if you are a non-resident for tax purposes and have government debt, such as a higher education loan, you will be required to declare your worldwide income.

What is the definition of a non-resident for tax purposes?

It is important to note that the test for whether you are an Australian or foreign resident for tax purposes is a different one to the test used by the Department of Home Affairs for determining residency status. You can be an Australian resident for tax purposes without being an Australian citizen or a permanent resident. You also may hold a valid visa for living or entering Australia but may not be considered an Australian resident for tax purposes.

There are four tests for determining your residency status for tax purposes. These are “the resides test”, “the domicile test”, “the 183-day test” and “the Commonwealth Superannuation fund test”. If you satisfy the requirements of any of these four tests, then you are considered to be a resident for tax purposes.

The resides test

The usual meaning of the word ‘resides’ applies to this test. If you have dwelt permanently or for a considerable time, had a settled or usual abode or lived in a particular place in Australia, you may be considered to be a resident for tax purposes according to this test. Some things that can be taken into account in determining residency status using this test are physical presence, intention and purpose, family and business interests, maintenance and location of assets and social and living arrangements.

The domicile test

A person’s domicile is their permanent home for legal purposes. For this test, you will be considered a resident of Australia for tax purposes if your permanent home by law or domicile is in Australia. This is unless you can show that your ‘permanent place of abode’ is outside of Australia. For an abode to be considered permanent, it must have a degree of permanence attached to it and not merely be temporary or transitory in nature.

The 183-day test

If you spend over one half of the year in Australia, you will be considered a permanent resident for tax purposes in accordance with this test. This is unless you can show that your ‘usual place of abode’ is outside of Australia and you do not intend to take up residence in Australia. Generally, this test is applied to determine the residency status of people arriving in Australia from overseas.

The Commonwealth Superannuation fund test

If you are an Australian government employee who is contributing to or eligible to contribute to specific public sector superannuation schemes, you will be considered to be a resident of Australia for tax purposes. This is despite any other factors such as your place of abode being outside of Australia.

Non-Resident Tax Australia and Tax treaties

Other countries have arrangements with Australia that may affect the amount of tax you are required to pay to Australia as a foreign resident. It is important to find out how these tax treaties may affect you if you are a resident of more than one country for tax purposes. This could happen where under Australian law you are considered to be a resident for tax purposes, and you are also considered to be a resident of another country for tax purposes under the laws of that country. In these situations, there will usually be a tie-breaker test contained within the arrangement or treaty that Australia has with the other relevant country. This will determine which country has the right to tax certain income of the relevant individual.

Non-Resident Tax Australia and Working holiday-makers

There is a separate tax rate for working holiday-makers in Australia. These tax rates apply regardless of a person’s residency status for tax purposes.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.