Find out how the ATO assesses who’s an Australian resident for tax purposes.
In order to be taxed by the ATO, you must qualify as an Australian resident. However, the standards used by the tax department to assess whether a person is a resident or not, differ from the standards the Immigration Office uses. So while Immigration may not consider you a resident, the Tax Office might.
Australian Tax Office residency tests
There are a couple of different tests the ATO uses to assess whether an individual is an Australian resident. This includes:
- The resides test. Looks at how you organise your life in a foreign country, such as opening bank accounts, to come to the decision of whether you reside in Australia according to the ordinary definition of the word.
- The domicile test. Is your permanent home in or outside of Australia?
- The 183 day test. Looks at whether you’re present in Australia for more than half of the working year.
- The superannuation test. Looks at whether you’re a member of a superannuation fund.
Am I a resident for tax purposes?
To find out, take a look at these potential situations.
Living and working overseas
Michael left Australia to work for an overseas firm on a 2 year contract. He believes he has the option to extend the contract by 2 more years so he is planning to stay overseas for 5 years. He doesn’t own his home in Australia and he plans on renting an apartment in the city where he will work. He plans to visit Australia less than once a year. Under the four residency tests, Michael is considered a foreign resident for tax purposes. As such, Michael has to declare any income earned in Australia. He did not work in Australia so he is not required to complete a tax return.
It can be difficult to find out your residency status if you don’t know how long you will be away from the country. If you’re emigrating to live permanently in another country, you’re subject to foreign tax laws and you will not need to lodge an Australian tax return. If you’re only planning on working overseas for a year, and you’re staying with friends, you’re still an Australian resident for tax purposes. The ATO website has a handy tool you can use if you’re leaving the country to find out about your residency status. If you have a black and white case, the tool can help; however, the decision will often need to be referred to a case manager.
A working holiday in Australia
Frank is coming to Australia on a working holiday visa. This visa entitles Frank to stay in Australia and spend 6 months working with the one employer. Frank travels around the country for 2 months and then rents an apartment in Sydney, which is where he stays for the next 10 months. During this time Frank lives in an apartment with some Australians, makes friends, works on building sites as a removalist and becomes part of the community. Frank is considered an Australian resident by the tax office. He spent the majority of his time in the one place. Frank must declare any money he has earned in Australia and overseas on his tax return. He is entitled to reclaim his superannuation when he leaves the country and returns home.
The ATO guidelines provides information that helps explain how the ATO qualifies someone as an Australian resident for tax purposes. Below is a summary:
|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 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 include the income you’ve earned from all jobs around the world. You only need to declare income earned while on short trips outside Australia while residing here as a temporary resident.
What if I’m not an Australian resident for tax purposes?
The ATO website states that if you're not an Australian resident for tax purposes you must declare the following on your Australian tax return:
- Income earned in Australia (employment income, rental income)
- Australian pensions and annuities
- Capital gains on Australian assets (this includes interest earned on any savings account you have open in Australia).
Be sure to take a look at the ATO website to find the tax rate on your income tax. Foreign residents are charged the following rates on income tax:
|Taxable income||Tax on this income|
|0-$80,000||32.5c for each $1|
|$80,000-$180,000||$26,000 plus 37c for each $1 over $80,000|
|$180,001 and over $63,000 plus||45c for each $1 over $180,000|
You can't declare foreign income on your Australian tax return.
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 8AM to 8PM Monday to Friday.