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AU Tax 2024

Australian Resident for Tax Purposes

Your residency makes a big difference to how you are taxed in Australia. The Australian Taxation Office (ATO) uses different standards to the Department of Immigration and Border Protection to determine your residency for tax purpose. Because of this, you must ensure that wherever you reside, according to the ATO’s standards, you are taxed (and refunded) appropriately.

Generally, you are considered an Australian resident for tax purposes if you have always lived in Australia or have come to Australia to live. In addition, it also applies to those that have been in Australia for more than half of the income year (unless your usual home is overseas and you don’t intend to live in Australia), or you are an overseas student enrolled in a course of study of more than six months duration. You are also considered a resident for tax purposes if you have moved to Australia from overseas and intend to stay for the foreseeable future and make connections.

Determining residency

To determine your residency for tax purposes, there are a number of tests you can take. The first test is called a resides test. If you reside in Australia, you are considered an Australian resident for tax purposes and you don’t need to apply any other test.

If you don’t satisfy the resides test, you will still be considered a resident if you satisfy one of three statutory tests. These include the domicile test, the 183-day test and the superannuation test.

The domicile test requires you to show that your permanent home is in Australia. If it is, then you are considered an Australian resident for tax purposes.

The 183-day test requires that you have been present in Australia for half the income year (whether continuously or with breaks). If so, you are considered a resident.

The superannuation test is designed to ensure Commonwealth government employees working at Australian posts overseas are treated as Australian residents.

What’s the big deal anyway?

Residency makes a big difference to your tax situation. If you are an Australian resident you are generally taxed in Australia on your worldwide income from all sources. You are also entitled to the tax-free threshold and you must pay a Medicare levy.

If you are not a resident you are generally only taxed in Australia on your Australian-sourced income. Also, you are not entitled to the tax-free threshold. You do not pay the Medicare levy meaning you are not entitled to Medicare health benefits.

Does working overseas change your tax residency?

If you are an Australian resident going overseas to work you will generally remain an Australian resident for tax purposes. Residency is a question of fact that will be determined by your circumstances. You need to show that you have severed your connection with Australia for your status to change.

Your residency status will be considered primarily under the ‘resides’ test and if required the ‘domiciled’ test. The domicile test extends the concept of residence so that a person who is not resident in Australia under the ‘resides’ test may be an Australian resident under the domicile test.

What if your residency status changes?

If your status has changed from resident to foreign resident during the income year, answer ‘yes’ to the question ‘Are you an Australian resident?’ on your tax return.

This ensures you are taxed at resident rates for the tax year. Your foreign residency for part of the year is taken into account by a reduction in your tax-free threshold. You are entitled to a pro-rata tax-free threshold for the number of months you are an Australian resident.

To claim a tax offset for a dependent spouse, you must both be Australian residents for tax purposes. You will need to reduce your claim to take into account the period you were both foreign residents.

Foreign residents do not have to pay the Medicare levy. In your tax return you can claim the number of days in the income year that you are not an Australian resident as exempt days.

From the date you cease to be an Australian resident, there is no need to disclose your foreign-source income in your tax return. Also, all Australian-sourced interest, dividends and royalties derived after you ceased to be an Australian resident are subject to the withholding tax provisions as a final tax and should not be included in your tax return.