Tax return for foreign residents
Are you an Australian resident or a foreign resident for tax purposes? Here's how to find out.
If you're an Australian resident, you're required to file a tax return with the ATO and declare all income you've earned anywhere in the world in the past financial year. However, the standards used by the ATO to assess whether a person is a resident or not differ from the standards the Department of Immigration and Border Protection uses. So while Immigration may not consider you a resident, the tax man might.
Read on to find out if you're an Australian resident for tax purposes.
Australian Tax Office residency tests
There are a few different tests the ATO uses to assess whether an individual is an Australian resident for tax purposes. These include:
- The 'resides' test. This is the primary test of tax residency. It assesses a range of factors to determine whether you reside in Australia and are therefore a resident for tax purposes. The test takes into account factors such as the purpose of your presence in Australia, your family and business ties, whether you open bank accounts, and your social and living arrangements.
If you don't satisfy the 'resides' test, you'll need to satisfy one of the following tests to be considered a resident for tax purposes:
- The domicile test. If your domicile (your permanent home) is in Australia, you'll be classified as an Australian resident for tax purposes.
- The 183-day test. To satisfy this test, you'll need to be present in Australia for at least half the income year, either continuously or with breaks.
- The superannuation test. This test is designed to ensure that Australian Government employees working overseas at Australian posts are classified as Australian residents for tax purposes.
The ATO guidelines explain situations when you will qualify as an Australian resident for tax purposes. Check out the table below for some common examples:
|Leave Australia temporarily and do not rent or buy a home overseas||Yes||Primary place of residence is Australia|
|Leave Australia permanently||No||Australia is no longer primary place of residence|
|Visiting Australia for more than 6 months and spend most of your time in the one place||Yes||Behaviour of a resident|
|Visiting Australia for more than 6 months and spend your time in multiple locations||No||Behaviour of a traveller|
|Studying at an Australian institution for more than 6 months||Yes||Behaviour of a resident|
What does it mean if I’m an Australian resident for tax purposes?
- You must lodge an income tax return in Australia
- You must declare the income you’ve earned from all around the world
- You're entitled to the tax-free threshold, which means you won't have to pay tax on a specified portion of your income
- You will usually have to pay the Medicare levy
Check out the marginal tax rates that apply to Australian residents for the 2019–20 financial year below:
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $90,000||$3,572 plus 32.5c for each $1 over $37,000|
|$90,001 – $180,000||$20,797 plus 37c for each $1 over $90,000|
|$180,001 and over||$54,097 plus 45c for each $1 over $180,000|
What if I’m not an Australian resident for tax purposes?
If you're a foreign resident working in Australia:
- You must declare any income earned in Australia on your tax return
- The income you must declare includes employment income, rental income, Australian pensions and annuities, and capital gains on Australian assets
- You're not entitled to the tax-free threshold, which means you'll have to pay tax on every dollar you earn in Australia
- You don't pay the Medicare levy (and you can't access subsidised health care under Medicare)
- You don't need to declare any Australian-sourced interest, dividends or royalties (as long as the Australian financial institution or company that pays you has already withheld tax from the payments you have received)
Make sure you take a look at the ATO website to discover the marginal tax rate that applies to the income you earn. The foreign resident tax rates for 2020–21 are shown in the table below:
|Taxable income||Tax on this income|
|0 – $90,000||32.5c for each $1|
|$90,001 – $180,000||$29,250 plus 37c for each $1 over $90,000|
|$180,001 and over||$62,550 plus 45c for each $1 over $180,000|
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If you're a foreign resident for tax purposes, you can't declare foreign income on your Australian tax return.
Am I a resident for tax purposes?
To help you answer this question, let's take a look at a couple of fictional examples.
Living and working overseas
Let's say Michael has left Australia to work for a UK-based accounting firm on a 3-year contract. He doesn’t own his home in Australia and he plans on renting an apartment in London, returning home to visit Australia no more than once a year.
Under the four residency tests listed above, Michael is considered a foreign resident for tax purposes. As such, Michael only has to declare any income earned in Australia to the ATO. As he did not work in Australia and didn't earn any income in Australia during the past financial year, he is not required to complete a tax return.
The ATO website has a handy tool you can use if you’re leaving the country to calculate your residency status.
Staying indefinitely in Australia
Now let's pretend Hamish comes to Australia from New Zealand on a special category visa which allows him to remain in Australia indefinitely and also to work here. Hamish doesn't know where he will want to live in the future, so he holds onto his home and other assets back in New Zealand.
For the first nine months of his stay, Hamish travels around the country visiting major tourist attractions. He does odd jobs and takes up short-term employment along the way to help fund his travels, but has no concrete plans about where he wants to settle. During this holiday period, Hamish is considered a foreign resident for tax purposes.
However, when Hamish finds a job in Melbourne and decides he wants to settle there permanently, he sells his home and assets in New Zealand. As his intention has changed and he now wants to live in Australia, and his behaviour (selling his property in New Zealand and buying an apartment in Melbourne) is consistent with residing in Australia, Hamish then becomes an Australian resident for tax purposes.
In some cases, determining your residency status for tax purposes can be quite complicated. If you have any questions about your personal situation, it’s best to contact the ATO for specific information. You can contact the ATO on 13 28 61 from 8am to 8pm Monday to Friday, and 10am to 4pm Saturday.
You might also like to consider paying a tax agent to complete your tax return for you. They can assess your personal situation and ensure your tax return is completed accurately and properly lodged with the ATO. For help choosing an online tax agent who can assist you no matter where you're based, consult our table below. Or visit our city guides to find a tax agent near you.
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