Moving overseas is an exciting opportunity to experience life in a new place. But before you go, it’s important to sort out your Australian tax residency.
Knowing your tax residency status is key. It affects how much tax you pay and what you need to do when filing. In this guide, we’ll explain everything you need to know about tax residency. You’ll learn how it impacts your taxes and how to prove you’re not an Australian tax resident.
Let’s dive into the differences between Australian residents and non-residents for tax purposes.
| Basis | Australian Resident | Non-Resident |
|---|---|---|
Income Tax rates | Progressive tax rates with tax-free threshold (AUD 18,200) | No tax-free threshold; taxed at non-resident rates from the first dollar earned |
Foreign Income Tax | Taxed on worldwide income | Generally not taxed on foreign income but taxed on Australian-sourced income |
Capital Gains Tax (CGT) | Taxed on global capital gains, but main residence exempt | Only taxed on Australian-sourced capital gains (e.g., Australian property) |
Medicare Levy | Required to pay the Medicare Levy (usually 2% of taxable income) | Exempt from the Medicare Levy |
Interest, Dividends, Royalties | Taxed at standard resident rates | Subject to withholding tax (default 10-30%) on Australian-sourced income in these categories |
Property Investments | Access to CGT discounts (if held for over 12 months) | No CGT discount available; higher CGT applies to property sales |
Superannuation Withdrawals | Taxed under resident rules for retirement | Withholding tax applies; non-resident rules may restrict or tax withdrawals differently |
Deductions and Tax Offsets | Eligible for a wide range of offsets and deductions | Limited access to offsets and deductions |
Rental Income (from Australian Property) | Taxed at marginal rates, with deductions available for expenses | ContentTaxed on net rental income; deductions allowed but subjected to stricter rules for non-residents |
Tax Lodgment | Must file annual tax return declaring global income | Must file a tax return for Australian-sourced income only |
Now let’s dive deeper into what both Australian residency and non-residency legally means for you.
Australian Tax Support for Expats, Wherever You Live
Navigating Aussie tax rules from overseas? Our registered tax agents can explain what applies to you and what the ATO expects.
Australian Laws for Residents and Foreign Residents
The Australian Tax Office differentiates between tax residents and tax non-residents. Although non-residents pay higher tax rates, tax residents who live abroad may also have to pay higher rates. The residency tests are challenging to apply universally.
If a person intends to return to Australia, they may still be a tax resident even after years of living overseas. This can result in them paying taxes in two countries for the same foreign income, making them pay more overall despite the lower resident tax rates.
The differences between Australian tax residents and non-residents in terms of tax rates can be seen in the table below.
Australian Resident vs Non-Resident Tax Rates
| Taxable Income Range | Resident Tax Rate | Non-Resident Tax Rate |
|---|---|---|
$0 – $18,200 | Tax Free Threshold | No Threshold |
$18,201 – $45,000 | 16% on each $1 over $18,200 | No Threshold |
$45,001 – $135,000 | $4,288 + 30% on each $1 over $45,000 | 30% on each $1 from 0 – $135,000 |
$135,001 – $190,000 | $31,288 + 37% on each $1 over $135,000 | $40,500 + 37% on each $1 over $135,000 |
$190,001+ | $51,638 + 45% on each $1 over $190,000 | $60,850 + 45% on each $1 over $190,000 |
Do I Pay More Tax as a Resident or Non-Resident?
In Australia, residents and non-residents pay tax differently. Residents get some tax breaks that non-residents don’t.
Let’s take a look at two people, Paul and Agatha. They both earn $80,000 a year. Paul is an Australian resident, and Agatha is a non-resident.
Here’s how their tax compares in the financial year 2024-2025 as per their $80,000 income:
Paul
- Tax Bracket: $45,001 to $135,000
- Tax Rate: 30% on each $1 over $45,001 + $4,288
- Total Payable Tax: 30% of ($80,000-$45,000) + $4,288 = $14,788
Agatha
- Tax Bracket: $0 to $135,000
- Tax Rate: 30%
- Total Payable Tax: 30% of $80,000 = $24,000
So, the difference in tax between a resident and a non-resident with the same income is $9,212.
However, this is just a simple example. Other things, like deductions or tax offsets, can change how much someone pays.
Even though non-residents pay higher tax rates, they don’t always end up paying more overall. For example, if an Australian resident earns income from another country, they must include it in their Australian tax return and pay tax on it.
Non-residents also face extra rules when selling property in Australia. If a non-resident sells property to an Australian resident, the buyer must withhold 15% of the sale price and send it to the tax office to make sure the seller pays their Capital Gains Tax.
Do I Have to Pay Double Tax if I Earn Income Abroad?
You may have to pay income tax in both countries if you earn income abroad. However, Australia has Double Tax Agreements (DTAs) with over 40 countries.
These treaties determine which country has the right to taxable income tax, so you don’t have to pay double tax. If you do end up paying double tax, you can claim a tax refund with Australia’s Foreign Income Tax Offset.
What About Working Holiday Makers?
Working holidaymakers have different tax rates compared to residents and non-residents.
All Australian-sourced income is subject to these tax rates, regardless of residency status. The 417 or 462 visa holders must pay the following working holidaymaker tax rates.
What Is an Australian Tax Resident?
The Australian Tax Office (ATO) defines Australian residency status differently than the Department of Home Affairs. Living in Australia for a certain period does not determine your residency status for tax purposes. If you no longer reside in Australia or earn any Australian income, the Tax Office will not consider you an Australian resident.
You may be an Australian expat living overseas or a temporary resident working in Australia. Every situation is different when it comes to tax residency. If you’re unclear whether you’re a tax resident, you should speak to a tax advisor or contact ATO.
Generally speaking, the ATO has four residency tests to determine if you are an Australian tax resident. Answering ‘yes’ to any one of them makes you a tax resident.
Let’s explore each test.
Residency Tests by the ATO
The Resides Test
The Resides Test assesses if you spent six months or more in Australia and showed a degree of habit indicating you plan to reside permanently.
The ATO examines your purpose for staying in Australia, asset maintenance and location, family and business ties, and social and living arrangements.
The Domicile Test
The Domicile Test aims to establish your permanent place of residence. It examines the purposes and length of your overseas stay, property ownership in Australia and overseas, and your financial and family ties to Australia.
The 183-Day Test
The 183-Day Test considers you a tax resident if you spend more than half the tax year (183 days) in Australia. This is unless you can prove your domicile is elsewhere.
The focus of this test is on time spent in Australia.
The Commonwealth Superannuation Fund Test
The Commonwealth Superannuation Fund Test applies to Australian government employees. It focuses on belonging to the superannuation scheme and being an eligible employee for Superannuation Act 1976.
What Is a Non-Resident for Tax Purposes?
In Australia, non-resident tax applies to those who live and work abroad without intending to return to Australia. For tax purposes, non-residents only need to file tax returns for income earned in Australia.
Proving non-residency status, however, could be challenging. If you cut all financial ties with Australia and move abroad, it’s clear you’re not a tax resident. However, owning and renting a property while living overseas could complicate matters.
Each individual’s situation is different on a case-by-case basis. Generally, those who leave Australia with no intention of returning are non-residents from the date of departure. It’s recommended to seek professional advice for all tax affairs to avoid costly mistakes.
How Do I Prove My Tax Non-Residency as an Expat?
To prove that you’re not an Australian tax resident while living outside the country, you can take various steps, such as:
- Submitting evidence of your commitment to living elsewhere, such as a long-term tenancy agreement or a mortgage.
- Removing your details from the Australian electoral register to prove that you’re no longer an Australian permanent resident.
- Taking ATO’s resident tests to prove that you don’t meet any of the criteria to be considered a tax resident.
- Selling or renting out your Australian property to prove that you have no intention of returning.
- Opening an overseas bank account and using foreign currency for all your expenses instead of Australian bank accounts.
- Applying for a foreign driver’s license in your new country.
- Purchasing overseas investment assets to cut financial ties with Australia.
- Obtaining foreign health insurance and not making any Medicare claims.
Suppose you plan to return to Australia after living abroad. In that case, you’ll resume your tax residency and must understand your tax obligations to avoid any unwanted tax consequences.
If you plan to stay permanently in Australia upon your return, you will be a tax resident from the date you land. In addition, your global income will be liable to tax and capital gains tax. If you sell property abroad after returning to Australia, you must pay CGT on your foreign asset.
Seek professional advice if you have any queries about foreign taxation rules and how to avoid CGT.
How Do I Pay Tax in Australia from Overseas?
To pay tax from overseas:
- Update your myGov account settings to allow tax return lodgment from abroad.
- Declare your residency status and all Australian-sourced income (and worldwide income if you’re a resident) on your tax return.
- Keep accurate records of your expenses to deduct from your taxable income tax and lower your tax liability.
ATO will assess your tax bracket and applicable offsets. Make sure you have an Australian bank account to receive any tax refunds.
Hassle-Free Tax Assistance for Aussie Expats and Investors
Whether you are a resident or non-resident taxpayer, understanding your tax obligations in Australia is crucial to avoid any unwanted consequences. As a resident taxpayer, you must pay taxes on your worldwide income.On the other hand, non-residents are only taxed on their Australian-sourced income.
There are various tests to determine your residency status. Tax treaties with other countries and foreign income tax offsets may affect your tax situation. If you need help navigating the complexities of the Australian tax system as an expat or investor, the Odin Tax Team is here to assist you.
Contact our tax expert today for expert tax advice and hassle-free assistance on your Australian tax returns.
FAQs about Australian Resident vs Non-Resident Tax
Do I pay tax in Australia if I am a non-resident?
Yes, if you are a non-resident of Australia for tax purposes, you are still required to pay tax on Australian-sourced income. However, non-residents are taxed differently from Australian residents. Here’s how it works:
Tax on Australian-Sourced Income:
- Non-residents are taxed on income that is generated within Australia, such as:
- Employment income from working in Australia.
- Rental income from Australian property.
- Interest, dividends, and royalties from Australian investments (withholding tax may apply).
- Capital gains from the sale of Taxable Australian Property (TAP), such as Australian real estate or business assets.
- You do not need to pay tax on foreign income (income earned outside of Australia).
- Non-residents are taxed on income that is generated within Australia, such as:
Higher Marginal Tax Rates:
- Non-residents do not have access to the tax-free threshold (AUD 18,200 for residents) and are taxed from the first dollar earned in Australia.
- Non-resident tax rates start at 30% for income up to AUD 135,000, with higher rates applying to higher income brackets:
- 30% for income up to AUD 135,000.
- 37% for income between AUD 135,001 to AUD 190,000.
- 45% for income over AUD 190,000.
Capital Gains Tax (CGT):
- Non-residents must pay Capital Gains Tax (CGT) on gains made from Taxable Australian Property (TAP), including Australian real estate, business assets, or shares in companies that hold Australian property. However, non-residents do not get the 50% CGT discount available to residents for assets held for more than 12 months. From 1 July 2027, new legislation replaces the 50% CGT discount with cost-base indexation; residents can still use the discount for gains accrued before that date, and foreign residents generally cannot access it.
Withholding Taxes:
- Non-residents are subject to withholding taxes on certain types of income, such as:
- Interest (typically taxed at 10%).
- Dividends (depending on whether franking credits are available, taxed at 15% or 30%).
- Royalties (typically taxed at 30%).
- Non-residents are subject to withholding taxes on certain types of income, such as:
Foreign Resident Withholding:
- If you sell Australian property as a tax non-resident, the buyer is required to withhold 15% of the sale price and remit it to the Australian Taxation Office (ATO) as a prepayment of your CGT.
So, as a non-resident, you will pay tax on Australian-sourced income but are not taxed on foreign income. To determine your exact tax obligations, it’s advisable to consult the Australian Taxation Office (ATO) or a tax professional.
Am I an Australian resident or foreign resident for tax purposes?
You are an Australian resident for tax purposes if:
- You live in Australia and spend 183 days or more in the country during the tax year.
- You maintain a permanent home in Australia, even if you’re temporarily overseas.
- You have strong ties (family, business, or financial) to Australia.
- You are a member of specific Australian government superannuation schemes.
You are a foreign resident if:
- You live overseas permanently and have limited ties to Australia.
- You spend most of your time outside Australia and have a permanent home abroad.
Australian residents are taxed on worldwide income, while foreign residents are only taxed on Australian-sourced income. For more clarity, consult the ATO or a tax professional.
Do Australian citizens have to pay taxes on foreign income?
Yes, Australian citizens who are tax residents of Australia must pay tax on their worldwide income, which includes income earned overseas. This applies to all types of foreign income, such as:
- Employment income
- Investment income (dividends, interest, and rental income)
- Business income
- Capital gains from foreign assets
However, non-residents and temporary residents are generally only taxed on Australian-sourced income and not foreign income.
If you’re an Australian tax resident, you may be eligible for foreign income tax offsets, which help reduce double taxation if you’ve paid tax on the same income in another country. It’s important to declare all foreign income when filing your tax return and consult the ATO or a tax advisor for specific guidance.
How does the ATO determine if I am a resident or non-resident for tax purposes?
The ATO uses various tests to determine your residency status for tax purposes, including the following.
- The Domicile Test: If your permanent home is in Australia, you may be considered a resident for tax purposes.
- The 183-Day Test: If you spend more than half of the tax year in Australia, you may be treated as a resident for tax purposes, unless your usual place of abode is outside Australia.
- The Superannuation Test: If you are an Australian government employee working overseas and contributing to specific superannuation funds, you may be classified as a resident for tax purposes.
If I live overseas, am I automatically a non-resident for tax purposes?
No, living overseas does not automatically make you a non-resident for tax purposes. You need to meet the criteria set out by the ATO, which assesses factors like your ties to Australia (family, property, employment) and the purpose and duration of your overseas stay.
Can I claim the tax-free threshold as a non-resident?
No, non-residents cannot claim the tax-free threshold. Only Australian residents for tax purposes are entitled to claim their tax-free threshold.
What happens if my residency status changes during the financial year?
If your residency status changes (e.g., you move overseas or return to Australia), you will need to lodge a part-year tax return. This means you may be taxed as a resident for part of the year and a non-resident for the remainder, depending on when your residency status changed.
Can I change my tax residency status if I’m an Aussie expat?
Yes, your tax residency status can change depending on your personal circumstances. If you permanently move overseas, you may be treated as a non-resident for tax purposes. Conversely, returning to Australia or maintaining significant ties (family, home, superannuation) can result in you being classified as a resident for tax purposes again.
