Resident Vs Non-Resident Tax in Australia

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Moving overseas is a lot more complicated than simply packing a bag and booking a flight. Aside from negotiating visas and arranging somewhere to live in your new country, you need to sort out your Australian tax residency.

If you live abroad, you’re still an Australian citizen. However, you may not be a tax resident. So, what do all these terms mean? And why does it matter? Moreover, which one saves you more tax?

Unfortunately, it matters quite a lot. If you don’t understand your tax residency, you might pay double taxation – in your new country and Australia. Don’t worry; our guide on resident vs non-resident tax will unpack everything you need to know about your tax residency in Australia.

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What is an Australian Tax Resident?

The Australian Tax Office‘s understanding of Australian residency status differs from the Department of Home Affairs. It doesn’t matter how long you have lived in Australia. If you no longer live here or receive any Australian income, the tax office won’t consider you an Australian resident.

In essence, to be a tax resident, you must

  • Have lived and worked in Australia your entire life
  • Have lived and worked in Australia for six months or more, generally in the same place the whole time
  • Have visited another country as a temporary resident but not purchased property abroad or intend to stay long term
  • Study in Australia as an international student for six months or more

If any of the above criteria apply to you, you must pay tax in Australia. The caveat is that you have to pay income tax on all your earnings – even worldwide income earned outside Australia.

What is a Non-Resident for Tax Purposes?

In Australia, non-resident tax applies to those who live and work abroad without intending to return to Oz. Non-tax residents only need to lodge tax returns for income earned in Australia.

It’s a little more challenging to prove that you’re a non-resident for tax purposes. If you move abroad and cut all financial ties with Australia, then it’s clear you’re not a tax resident; you have no Australian income on which to pay tax. However, it could get more complicated if you still own a property and rent it out while living overseas.

Each individual’s situation is assessed on a case by case basis. On the whole, those who leave Australia with no intention of returning are usually non-residents from the date of departure. That said, it’s best to seek professional advice for all tax affairs to avoid making a costly mistake.

How Do I Know If I Am an Australian Tax Resident?

If you’re unclear about whether you’re a tax resident, you should speak to a tax advisor or contact ATO. There aren’t any hard and fast rules about tax residency. Even if your situation seems similar to someone else’s, you might have different residency status.

To prove you’re not an Australian tax resident, you’ll need to provide evidence of your commitment to leave Australia – we’ll give more details on how later. You will also need to pass ATO’s tests. The Australian Tax Office has four residency tests: the resides, domicile, 183-day, and commonwealth superannuation fund test.

Resident Vs Non-Resident Tax in Australia

ATO Foreign Resident Tests

If you answer yes to any of the four residency tests’ questions, you are an Australian tax resident. Let’s look at what each test entails.

The Resides Test

ATO dictates that a person physically present for six months (not necessarily continuously) or more suggests living in Australia. However, to declare you a tax resident, you must show a degree of habit or routine – something to indicate you plan to reside in Australia permanently.

For example, ATO might assess if your day to day activities are similar to those you had before entering Australia.

This test focuses on:

  • The purpose for your stay in Australia
  • Maintenance and location of Australian assets
  • Family and business ties
  • Social and living arrangements

The Domicile Test

A ‘domicile’ is a place or country that a person treats as their permanent home. The domicile test aims to establish where you set up your permanent place.

This test focuses on:

  • Purposes and length of your stay overseas
  • Whether you still own a property in Australia while overseas
  • Whether you own a property overseas
  • Your financial and family ties to Australia

The 183-Day Test

If a person spends more than half the tax year (183 days) in Australia, they may be declared a tax resident unless they can prove their domicile is elsewhere.

This test focuses on:

  • Time in Australia

The Commonwealth Superannuation Fund Test

The commonwealth superannuation fund test is for any Australian government employee.

This test focuses on:

  • Belonging to the superannuation scheme
  • An eligible employee for Superannuation Act 1976

What Does It Mean to Be Domiciled in Australia?

To be domiciled in Australia means that Australia is considered your permanent home or the country you intend to reside in indefinitely. Your domicile is generally the country where you have your permanent home and main establishment.

Some key indications that Australia is your domicile:

  • You were born in Australia (your domicile ‘of origin’)
  • You have moved to Australia with the intention of residing here permanently (a ‘domicile of choice’)
  • Your permanent home and principal business/financial connections are in Australia, even if you travel frequently
  • You have lived in Australia for an extended period of time and made it the center of your personal and economic interests
  • You consider Australia to be your real, permanent home and the place you will eventually reside long-term or retire to
  • Your social and family ties are primarily based in Australia
  • You are a citizen or permanent resident of Australia

Your domicile is where you have set down permanent roots, even if you are out of the country temporarily. 

Why Do I Need to Know?

ATO treats tax residents and foreign residents differently. Despite paying higher tax rates as a foreign resident, tax residents living abroad must pay the higher price. Because the tests are primarily facts-based, they can be difficult to apply universally.

Someone who leaves Australia for five or even ten years might still be an Australian tax resident if they don’t cut ties with their home country.

Their ultimate aim is to return to Australia in the distant future, and they don’t take the necessary steps to convince ATO that they are not an Australian resident. They may have to pay worldwide taxable income tax. The issue here is that they might pay tax in two countries for one set of foreign income.

Despite the lower resident tax rates, they pay more overall.

Is Everything the Same for a Non-Resident and Resident Tax?

Aside from paying tax on worldwide income or not, there are quite a few differences between Australian tax residents and non-residents.

  • Tax Rates: Non-residents pay a higher tax rate on their taxable income than Australian residents. Plus, there is no free-tax threshold for non-residents; they pay 32.5% on all Australian sourced income from $0 to $120,000.
  • Medicare Levy: Non-residents do not have to pay the Medicare Levy (2%) or the Medicare Levy Surcharge. All residents pay the Medicare Levy. High-income earners pay an additional surcharge of 1 – 1.5%.
  • Low and Middle-Income Tax Offsets: The low-income tax offset and middle-income tax offset assist Australian tax residents on lower salaries. Non-residents cannot apply these offsets to their taxable income.
  • Deductions: Australian non-residents and residents alike can deduct all income-related expenses from their taxable income.

Principal residence capital gains tax exemption: Only Australian tax residents qualify for the main residence exemption on their capital gains tax. Non-residents must pay the entire capital gains tax amount.

Do I Pay More Tax as a Resident or Non-Resident?

As a tax resident living inside Australia, you would pay the marginal tax rates. Say you earned $60,000 a year in wages and another $30,000 investment income. Your total assessable income would land you in the third tax bracket – paying 32.5%. The non resident tax is also 32.5% for $90,000 a year.

However, the marginal tax rate starts at $120,000. This means non-residence pay 32.5% on all earnings below the threshold. Residents for Australian tax purposes have a free-tax threshold on all income up to $18,200 and only pay 19% up to $45,000.

Yet, the higher non-resident tax rates don’t guarantee that foreigners pay more tax than permanent residents. If an Australian resident earns money in another country within the same financial year, they must also declare it on their Australian tax return.

The downside of non-residency is apparent when expats try to sell property in Australia. When buying from a foreign resident, the purchaser must withhold 12.5% of the purchase price for ATO. This withholding tax ensures that the foreign resident pays their capital gains tax.

Do Non-Residents Have to Pay the Medicare Levy?

Another blessing for non-resident individuals is they don’t have to pay the 2% Medicare Levy. Nor do they need to pay the surcharge if they earn over a certain income. Australian individual taxpayers earning more than $90,000 must pay 1%, 1.25%, or 1.5% surcharge unless they can prove they have adequate private health insurance.

Temporary residents also do not have to pay the Medicare Levy. However, this also means that temporary residents cannot access the Medicare health system and must have their own health insurance cover.

Double Taxation Treaties

So we’ve mentioned that residents for tax purposes must pay resident tax rates on their worldwide income. What happens if you have to pay two separate tax authorities income tax?

Australia has a double tax agreement with more than 40 other countries. If you’re a resident of more than one country, these tax treaties may affect you. There is usually a tie-breaker test that dictates which country has the right to taxable income tax.

Moreover, if you pay double tax in one income year, Australia offers a Foreign Income Tax Offset. To claim this tax refund, you must have paid the tax payable in your other country of residence and included it in your Australian tax return.

Working Holiday Makers

Working holiday makers have different tax rates again. Your residency status doesn’t matter if you’re a working holidaymaker – you must pay the following tax rates on all your Australian sourced income.

  • 15% on taxable income between $0 – $45,000
  • 32.5% on taxable income between $45,001 – $120,000
  • 37% on taxable income between $120,001 – $180,000
  • 45% on taxable income over $180,000

How do you know if you’re a working holidaymaker? The working holidaymaker scheme allows adults to stay in Australia for 12 months, living and working. If you have the 417 or 462 visas, you will have to pay working holiday maker tax rates.

I'm an Aussie Expat; Am I a Tax Resident or Not?

Aussie expats are not generally taxed on their foreign-sourced income. Expats leave Australia for an extended period – usually with little intention of returning (at least soon). Therefore, expats will probably not pass the resides or domicile tests. They are foreign residents from the day they depart Australia.

However, it becomes more complicated if an expat’s spouse remains in Australia for more than half the tax year. Although ATO judges on a case by case basis, married partners aren’t always a separate legal entity.

How Do I Prove I'm Not a Tax Resident?

Remaining an Australian tax resident while living outside the country could be very expensive. Here are a few ways to prove you’re not an Australian tax resident.

  • Submit evidence of your commitment to living elsewhere – whether that’s a long-term tenancy agreement or a mortgage.
  • Remove your details from the Australian electoral register to prove you are no longer an Australian permanent resident.
  • Take ATO’s resident tests as outlined above – if you pass any of them, you will remain a tax resident.
  • Sell or rent out your Australian property – getting rid of your Australian home will prove you have no intention of returning.
  • Open an overseas bank account and use your foreign currency for all your expenses rather than your Australian bank accounts.
  • Apply for a foreign driver’s licence in your new country.
  • Purchase overseas investment assets to prove you cut financial ties with Australia.
  • Obtain foreign health insurance and don’t make any Medicare claims.

Resuming Tax Residency in Australia

If you have lived abroad for a while and plan to enter Australia again, you’ll resume your tax residency. Resettling in Australia is more than getting used to the lifestyle once more, but you will also need to sort out your tax affairs. You must understand your tax obligations to avoid any unwanted tax consequences.

It’s best to address the situation before entering Oz. If you plan to stay permanently in Australia upon your return, you will be a tax resident from the date you land. Therefore, your global income will be liable to tax and capital gains tax. If you sell property abroad after returning to Australia, you must pay CGT on your foreign asset.

While renting out a foreign property while living in Australia might seem like an excellent way to earn extra income, it could be very costly. Make sure you assess all your options before returning to Australia. And if you plan to sell your foreign property and assets, make sure you do so before jumping on the plane.

Seek professional advice if you have any queries about foreign taxation rules and how to avoid CGT.

How Do I Pay Tax in Australia from Overseas?

Paying tax from overseas is relatively straightforward. Expats can log into their myGov account and update the settings to allow them to lodge a return from overseas. On your return, you must declare whether you are an Australian resident or not. Also, include all your Australian sourced income (and worldwide income if you’re a resident).

To reduce the amount of tax you pay, ensure you keep diligent records of all your costs to deduct from your taxable income tax.

ATO will assess your tax bracket and whether any offsets apply. Make sure you have an Australian bank account to receive any tax refunds.

Bottom Line: Resident vs Non-Resident Tax

Knowing your tax residency is crucial as an expat or foreign national entering Australia. While resident tax rates are lower than foreign tax rates, remaining a tax resident while living and working abroad could be costly. Taking the four ATO residency tests and taking measures to prove you’re a non-resident is vital.

Moreover, if you plan to move to Australia (whether as a returning expat or a foreigner), beware of capital gains tax. CGT applies to all foreign property and assets if you’re a resident for tax purposes. Moving abroad or to Australia and buying property is a complicated process, especially regarding taxation rules.

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Frequently Asked Questions

Foreign residents must take the resides test to prove they are a non-resident taxpayer. If you do not satisfy any of the questions, you must take three other tests. If you pass any of them, you are an Australian tax resident. To prove your commitment to leaving Australia, ensure you make long-term living arrangements in your new country and cut your ties with Oz.

Foreign resident tax rates for 2023 are as follows:

Taxable incomeTax on this income
$0 – $120,00032.5%
$120,001 – $180,000$39,000 plus 37% of excess over $120,000
$180,001 and over$61,200 plus 45% of excess over $180,000

There is no free-tax threshold for foreign residents, nor are they eligible for the CGT exemption or other tax offsets.

Working holiday makers (WHM) on a 417 visa are taxed at a lower rate of 15% on their first $37,000 of income. After that, the normal non-resident tax rates apply.

There are also a number of tax treaties in place between Australia and other countries, which may reduce the tax rates that non-residents have to pay on certain types of income.

If you are a non-resident of Australia and you earn income from Australian sources, you may need to pay withholding tax. This is a tax that is deducted from your income at the time you receive it, and it is paid to the Australian Tax Office (ATO) on your behalf.

The withholding tax rates vary depending on the type of income and the country you are a resident of. You can find more information about withholding tax on the ATO website.

Please note that this is just a general overview of the tax rates for non-residents in Australia. There are a number of other factors that can affect your tax liability, such as the type of income you earn and your residency status. If you are unsure about your tax obligations, you should seek professional advice.

Anyone working and living in Australia pays resident tax rates. If you live outside Australia or are a foreign resident visiting Australia, you pay non-resident tax. Foreign tax rates are higher than resident tax rates. However, foreign residents only pay income tax on money earned in Australia.

Foreign residents in Australia must pay tax on all Australian sourced income. Foreign tax rates are higher, with no tax-free threshold. However, if you become an Australian tax resident, you must pay income tax on all your taxable income worldwide, including CGT.

Non-resident tax rates in Australia are higher than those for residents. If you’re a foreign resident earning income in Australia, you must pay 32.5% on all money below $120,000. The marginal tax rates above this income are the same as those for a resident taxpayer.

To be domiciled in Australia means that Australia is considered your permanent home or the country you intend to reside in indefinitely. Your domicile is generally the country where you have your permanent home and main establishment.

There are a few ways you can become domiciled in Australia:

  • Be born in Australia. If you were born here, Australia is automatically your domicile of origin.
  • Move to Australia and intend to reside here indefinitely. If you immigrate to Australia with the goal of permanently living here, you can adopt a domicile of choice in Australia.
  • Have your permanent home and primary business/financial establishment in Australia, even if you travel outside the country frequently. Where you base yourself and have your permanent home matters most.
  • Reside in Australia for an extended period of time. If you’ve lived in Australia for many years, you may be deemed domiciled in Australia by your lifestyle.

Generally you can only have one domicile at a time for legal purposes. However, it is possible to have a dual domicile in limited circumstances, like having domiciles in two countries you travel between frequently. But usually one domicile will supersede the other.

Being domiciled in Australia can determine your residency and tax status. It also affects estate/inheritance matters, your status as an Australian citizen/national, and other legal matters pertaining to jurisdiction.

Yes, you can intentionally change your domicile by moving permanently to another country and establishing your permanent home and business connections there. You can also lose your Australian domicile by leaving Australia indefinitely and settling elsewhere.

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