Residency for tax purpose – Part 18
International tax for individuals
Australian residents are generally taxed on their worldwide income from all sources. Temporary residents of Australia and foreign residents are generally taxed only on their Australian-sourced income, such as money they earn working in Australia.
To understand your tax situation you first need to work out if you are an Australian or foreign resident for tax purposes. This may be different to your residency status for other purposes – for example, you could be an Australian resident for tax purposes even if you’re not an Australian citizen or permanent resident.
Work out your residency status
As an individual you will fit into one of the following three categories:
- Australian resident for tax purposes:
If you satisfy any residency tests, you are an Australian resident for tax purposes. This means you have to declare all of your worldwide income even if you have already paid tax on it overseas.
A foreign income tax offset is generally available to reduce the Australian tax on the same income.
- Foreign resident:
If you do not satisfy any of the residency tests, 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-lodgement advice.
- Temporary resident:
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 while you are a temporary resident of Australia.
Other foreign income and capital gains do not have to be declared.
- The resides test:
If you reside in Australia, you are considered an Australian resident for tax purposes and you don’t need to apply any of the other residency tests.
If you don’t satisfy the ‘resides test’, you’ll still be considered an Australian resident if you satisfy one of three statutory tests.
- The domicile test:
You’re an Australian resident if your domicile (broadly, the place that is your permanent home) is in Australia, unless the Commissioner is satisfied that your permanent place of abode is outside Australia.
- 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.
- The superannuation test:
This test ensures that Australian government employees working at Australian posts overseas are treated as Australian residents.