What is a non-resident for tax purposes in Australia?
A non-resident for tax purposes in Australia is someone who does not satisfy the Australian tax residency tests. This generally means they are only taxed on income sourced in Australia and cannot claim the tax-free threshold or most tax offsets.
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How it works in practice
Understanding Tax Residency in Australia
For Australian tax purposes, your residency status is crucial as it determines how your income is taxed. Unlike immigration status, tax residency is assessed against specific criteria set by the Australian Taxation Office (ATO). If you are deemed a non-resident for tax purposes, your tax obligations are significantly different from those of an Australian resident.
Key Differences for Non-Residents
Non-residents are generally only taxed on income derived from Australian sources. This includes income such as employment income earned in Australia, rental income from Australian properties, and certain capital gains from Australian assets. Critically, non-residents cannot claim the tax-free threshold, meaning their first dollar of Australian income is taxed. They are also ineligible for most tax offsets available to residents.
Residency Tests
The ATO uses several tests to determine tax residency, the primary one being the "resides test." If you don't pass this, other tests like the domicile test, 183-day test, and superannuation test are considered. Each test has specific conditions related to your physical presence, intention, and links to Australia. It's possible to be an Australian citizen or permanent resident for immigration purposes but a non-resident for tax purposes.
Important exceptions
Tax treaties between Australia and other countries can modify residency rules and reduce Australian tax on certain income. Specific rules apply to temporary residents who may be treated as residents for tax purposes but have exemptions for some foreign income. Capital gains tax treatment for non-residents on Australian assets also has particular provisions, and certain investment income might be subject to withholding tax at a flat rate.
What you should do now
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Determine your tax residency status using the ATO's residency tests on their website or seek professional advice.
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Understand that as a non-resident, you are generally only taxed on income earned from Australian sources.
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Ensure you do not claim the tax-free threshold or most tax offsets when lodging your Australian tax return.
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Familiarise yourself with specific tax rates and reporting requirements for non-residents, as these differ from residents.
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Seek advice from a registered tax agent or the ATO if you are unsure about your residency status or tax obligations.
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