Australia taxes non-residents differently from residents in one fundamental way: there is no tax-free threshold. Every dollar of Australian-sourced income a non-resident earns is taxable from dollar one, and the rates start higher than most expats expect. For the 2025-26 financial year, the opening non-resident rate is 30% on income up to $135,000 – applied immediately, with no floor, no offset, and no grace period [4][5]. Understanding this is not a minor detail. It is the single most important structural difference in foreign resident tax in Australia, and getting it wrong produces large, surprise tax bills.
TL;DR
- Non-residents pay Australian tax from the first dollar earned – no tax-free threshold applies [5].
- The 2025-26 non-resident rate starts at 30% and rises to 45% above $190,000 [5].
- Resident and non-resident rate structures are not comparable – treating them as equivalent is a costly mistake.
- Foreign resident CGT withholding applies to Australian property sales regardless of residency and must be factored into property planning.
- Specialist Australian expat tax advice from a registered tax agent is the most reliable way to avoid structuring errors that generalists routinely miss.
What Are the Actual 2025-26 Non-Resident Tax Rates?
Non-resident tax rates in Australia are set by legislation and published by the ATO each financial year. For 2025-26, the structure is as follows [4][5]:
| Taxable Income (AUD) | Tax on This Bracket | Cumulative Tax at Top of Bracket |
|---|---|---|
| $0 – $135,000 | 30 cents per dollar | $40,500 |
| $135,001 – $190,000 | $40,500 + 37 cents per dollar over $135,000 | $60,850 |
| $190,001 and above | $60,850 + 45 cents per dollar over $190,000 | Increases at 45% |
The contrast with the resident scale is stark. An Australian resident earning $45,000 in 2025-26 pays 0% on the first $18,200 and progressively lower marginal rates above that [2][3]. A non-resident earning the same $45,000 pays 30% on every single dollar – a tax bill of $13,500 versus a resident’s considerably smaller obligation. The gap is not marginal; it is structural.
Why Does the Tax-Free Threshold Not Apply to Non-Residents?
The tax-free threshold is a concession available exclusively to Australian tax residents, grounded in the principle that residents consume public services and infrastructure. Non-residents, by definition, do not establish the same ongoing connection to Australia’s domestic economic base. As a result, if you are a non-resident, Australian-sourced income is taxed from dollar one at the rates above [5].
This means the question of tax residency status is not just an administrative classification – it directly determines your effective tax rate on every dollar earned. A person incorrectly classified as a non-resident when they are actually a resident (or vice versa) will either over-pay tax significantly or face ATO assessments after the fact. This is why tax residency determination sits at the centre of sound Australian expat tax advice, not at the periphery.
How Does Foreign Resident CGT Withholding Fit Into This?
Stepping back from the income tax scale, a separate but equally high-stakes issue for expats who own Australian property is the foreign resident CGT withholding regime. Under this regime, when a foreign resident sells Australian real estate, the purchaser is required to withhold 15% of the gross purchase price and remit it to the ATO at settlement – not 15% of the gain, but 15% of the entire sale price.
Key points about foreign resident CGT withholding:
- The 15% withholding applies regardless of whether a profit is made on the sale.
- It functions as a prepayment against the seller’s final CGT liability, not the final tax itself.
- Non-residents do not receive the 50% CGT discount available to residents who have held an asset for more than 12 months. The full nominal gain is assessable.
- A clearance certificate (for residents) or a withholding variation (for non-residents who believe the withheld amount exceeds the actual CGT) can be applied for through the ATO ahead of settlement.
- Failure to plan for the 15% withholding at settlement has caused significant cash flow problems for expat property sellers who were not briefed in advance.
This is one of the areas where generalist accountants most frequently produce incorrect outcomes for expat clients. The interaction between the withholding rate, the actual CGT calculation, and any applicable double tax agreement requires specific knowledge that sits well outside standard domestic tax practice.
What Income Does Australian Non-Resident Tax Actually Catch?
Non-residents are liable for Australian income tax only on income that has an Australian source. This is a narrower base than resident taxation, but it still captures a meaningful range of income types that expats commonly hold:
- Rental income from Australian investment properties (net of allowable deductions including interest, depreciation, and property management fees).
- Capital gains on taxable Australian property (real estate and certain indirect interests in land-rich entities).
- Employment income earned while physically working in Australia, even temporarily.
- Interest and dividends from Australian sources, though these are generally subject to withholding tax under different rules rather than the marginal rate scale.
- Business income from Australian operations or clients where the income has an Australian source.
Foreign-sourced income – salary earned entirely overseas, for example – is generally not taxable in Australia for non-residents. However, this only holds if tax residency has been correctly determined, which requires applying the ATO’s four residency tests (Resides Test, Domicile Test, 183-Day Test, and Commonwealth Superannuation Test) to the specific facts of each person’s situation.
Frequently Asked Questions
Do I pay Australian tax on my overseas salary if I am a non-resident?
Generally, no. Non-residents are only taxed on Australian-sourced income. If your salary is earned entirely overseas for a foreign employer, it falls outside the Australian tax net. However, this assumes your non-resident status has been correctly determined – an important qualifier.
Does the Medicare Levy apply to non-residents?
No. Non-residents are not subject to the Medicare Levy, as they do not have access to Medicare [3][5].
Can I claim negative gearing deductions on an Australian rental property as a non-resident?
Yes. Non-residents can claim allowable deductions against Australian rental income, including mortgage interest, depreciation, and property management fees. If the property runs at a loss, this reduces assessable income in Australia.
What happens if I have not lodged Australian tax returns for multiple years as a non-resident?
Overdue lodgments can attract ATO penalties and interest charges. However, the ATO does have mechanisms for managing overdue lodgments, and early voluntary disclosure typically produces better outcomes than waiting for the ATO to make contact. A registered tax agent can assist with lodging multiple years and engaging with the ATO on penalty management.
Is there a double tax agreement that can reduce my Australian tax as a non-resident?
Australia has double tax agreements (DTAs) with over 40 countries. These agreements can reduce or eliminate withholding tax on certain income types and can affect how income is allocated between jurisdictions. However, DTAs do not override Australia’s domestic non-resident rate scale on most income types – they operate alongside it.
How is tax residency determined if I moved overseas mid-year?
The ATO applies up to four tests to determine residency status. The outcome depends on your specific circumstances: where you live, your intention, the nature of your overseas arrangements, and the duration of your absence. Residency can change mid-year, and in some cases a split-year treatment applies.
What is the 15% foreign resident CGT withholding and when does it apply?
Foreign resident CGT withholding requires the purchaser of Australian real estate from a foreign resident to withhold 15% of the gross purchase price and pay it to the ATO at settlement. It applies to real property transactions where the vendor is a foreign resident and the value exceeds the relevant threshold. A withholding variation can be sought if the 15% figure exceeds the actual CGT liability.
About ODIN Tax
ODIN Tax is a Registered Australian Tax Agent specialising exclusively in Australian tax compliance and strategy for expats and non-residents. As part of the ODIN GROUP – which brings together tax, mortgage broking, and conveyancing services – ODIN Tax is built specifically for the complexity that comes with owning Australian assets from overseas. Led by Tax Director Pau Lam, with over a decade of specialist non-resident tax experience and 10,000+ clients served across 40+ countries, ODIN Tax holds a 4.9/5 Google rating from 330+ verified client reviews. Whether the challenge is a first-time non-resident return, a foreign resident CGT withholding question on a property sale, or years of overdue lodgments, ODIN Tax provides the kind of specialist knowledge that generalist practices routinely lack.
Have Australian income or property as a non-resident? The 2025-26 non-resident tax scale has no margin for misclassification or guesswork.
Speak with a specialist at ODIN Tax – specialist Australian expat tax advice from a team that works exclusively in this space.
References
- Australian income tax rates for US expats (2025-26 Guide) (www.expattaxonline.com)
- Australian tax: A guide for foreigners and expats (www.expertsforexpats.com)
- Non-Resident Tax Rates and Determining Your … (www.mytaxrefundtoday.com.au)
- Australia 2025-26 Tax Rates & Super Rates and Thresholds (trinitygroup.com.au)
