To understand your tax situation, you need to know if you are a resident for tax purposes. Residency for tax purposes may be different to your residency status for other purposes. You may be a resident for tax purposes even if you’re not an Australian citizen or a permanent resident for immigration purposes.
1. Australian Resident For Tax Purpose
If any of the following income test is satisfied, then you are Australian Resident for tax purpose. This means you need to declare worldwide income even though you have already paid tax on your overseas income.
The residency tests are as follows:
a. The resides Test
The resides test Under this test, you are a resident of Australia if you reside in Australia according to the ordinary meaning of ‘reside’ – which means ‘to dwell permanently, or for considerable time, to have a settled or usual abode, and to live in a particular place’. Some of the factors that can be used to determine residency status include physical presence, intention and purpose, family and business or employment ties, maintenance and location of assets, social and living arrangements.
b. The domicile test
Under this test, you are a resident of Australia if your domicile is in Australia, unless the Commissioner is satisfied that your ‘permanent place of abode’ is outside Australia. A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent). A permanent place of abode should have a degree of permanence and can be contrasted with a temporary or transitory place of abode.
c. The 183 day test
You will be a resident under this test if you spend over half the year in Australia, unless it is established that your ‘usual place of abode’ is outside Australia and you have no intention of taking up residence here. If you have already taken up residence in Australia, this test will not generally apply regardless of the number of days you spend overseas. In practice, this test only applies to individuals arriving in Australia.
d. The Commonwealth superannuation fund test
This test only applies to certain Australian Government employees who are eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS). If this is the case, you (and your spouse and children under 16) are considered to be a resident of Australia regardless of any other factors.
2. Foreign residents
If you do not satisfy any of the residency tests below, you are a foreign resident. As a foreign resident, you have no tax-free threshold and do not pay the Medicare levy. You must still declare any income derived in Australia, including any capital gains on taxable Australian property in your Australian tax return. If you have a Higher Education Loan Program or Trade Support Loan debt, you are required to declare your worldwide income or lodge a non-lodgment advice.
3. Temporary residents
You will be a ‘temporary resident’ if you hold a temporary visa and neither you or your spouse is an Australian resident within the meaning of the Social Security Act 1991 (that is, not an Australian citizen or permanent resident). As a temporary resident, you only need to declare income derived in Australia, plus any income earned from employment or services performed overseas for short periods while you are a temporary resident. Other foreign income and capital gains do not have to be declared. There are separate rules for working holiday makers and individuals who are dual residents.
Dual residents
You are considered to be a dual resident if you are a resident of Australia for domestic income tax law purposes, and a resident of another country for the purpose of that other country’s tax laws. Where Australia has a double tax treaty with a foreign country, a treaty tie breaker test would usually determine which country has the right to tax Australian and foreign sourced income.
Working holidaymakers
If you come to Australia for a working holiday under visa subclass 417 or 462, you have fixed tax rates regardless of your residency status.
Please contact ISM Accountants & Advisors for more information.
