How to know if you are an Australian resident for tax purposes

How to know if you are an Australian resident for tax purposes

Anyone new to Australia will quickly need to figure out whether or not they are considered an Australian resident for tax purposes. Australians living overseas should also make themselves aware of their residency status, and what it means for their tax entitlements and reporting obligations.

The Australian Taxation Office (ATO) uses different criteria to the Department of Home Affairs to determine residency. Under ATO standards, an individual doesn’t necessarily have to be an Australian citizen or live in the country permanently to be considered a resident for tax purposes. Instead, various residency tests are used to decide if and how a person should be taxed in Australia, and these dictate the level of liability. For example, Australian residents are generally taxed on their worldwide income from all sources, while those deemed foreign residents only have to declare income earned in Australia. Foreign residents can also claim an exemption from the Australian Medicare levy, which residents pay at a rate of 2% of their taxable income.

Australian residents are entitled to a tax-free threshold of AU$18,200, while those considered foreign residents have no such entitlement. Part-year residents – those who became or ceased to be a resident at some point during the financial year – can avail of a tax-free threshold of at least AU$13,464.

Read on to learn more about how Australian residency status is decided.

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Are you an Australian resident for tax purposes?

According to the ATO’s criteria, an individual is generally considered an Australian resident for tax purposes if they:

  • have always lived in Australia, or have come to Australia to live permanently.
  • have been in Australia continuously for six months or more, working in one job and living at the same place for the majority of that time.
  • have been in Australia for more than six months of the year, unless their usual home is overseas and they don’t intend to live in Australia permanently.
  • go overseas temporarily and do not establish a permanent home in another country.
  • are on a student visa in Australia, enrolled in a course that is more than six months long.

Anyone who isn’t sure whether or not they fit these criteria can consult a range of published guidance on the ATO website, including a helpful “Are you a resident?” decision tool. There is also a decision tool that Australia residents who have left or intend to leave the country can use to work out their obligations.

Australian residency tests

Australian residency status is generally decided through four statutory tests, taking into account factors including physical presence in and ties to the country. These include:

The resides test

The most important test for determining Australian residency takes the word “reside” to mean “to dwell permanently, or for a considerable time.” The ATO states that anyone who resides in Australia according to this definition is automatically considered an Australian resident for tax purposes. In this case, no other residency tests need be applied.

The domicile test

Even if a person doesn't satisfy the resides test by currently living in Australia, they’re still considered an Australian resident for tax purposes if their domicile – or permanent home under the law – is in the country. In applying this test, the ATO uses several different interpretations of the word domicile, including:

  • Domicile by origin, attributed at birth.
  • Domicile by choice, inferred by law if there is both a change of residence and an intention of making the change permanently or at least indefinitely.
  • Domicile by operation of law.

This means that people who have lived in Australia all their lives but go overseas to work temporarily – even for a period of years – are still considered Australian residents for tax purposes during the time they are abroad. They will be expected to declare their annual income to the ATO during this period, no matter where in the world that money is earned.

The 183-day test

An individual is deemed an Australian resident for tax purposes under this test if they spend more than half the year of income – 183 days or above – in Australia, on a continuous or intermittent basis. However, they will not satisfy this test if their usual place of abode is outside Australia, or if they have no intention of taking up permanent residence in Australia.

The Commonwealth superannuation test

This test applies to Australian Government employees working abroad. Under its stipulations, an individual is considered an Australian resident for income tax purposes if they are a contributing member of either the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS). An individual’s spouse and any children under 16 years old are also classified as Australian residents for tax purposes if this test applies.

Considerations for working holidaymakers

Those who enter Australia to work on a short-term basis for a specified period generally fall into the category of temporary Australian residents, provided their spouse is not an Australian resident. An individual on a temporary visa must still declare any income earned in Australia to the ATO, as well as any income earned from employment performed abroad while they are a temporary Australian resident.

For 2020–21 and later income years, working holidaymakers are taxed at a rate of 15% on salaries below AU$45,000, with bands increasing beyond this level. They are not entitled to the tax-free threshold of AU$18,200 which applies to Australian residents. Meanwhile, Australian residents pay 19% on anything between AU$18,200 and AU$45,000, and increasing amounts thereafter.

For full details of Australia's current individual income tax rates and more information regarding the various residency classifications, visit the ATO website.

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