How do I work out if I’m a resident for tax purposes?

Whether you’re an Australian resident for tax purposes or a foreign resident depends on more than just your physical location, citizenship, or your visa. It also considers your family ties, assets and your business or employment situation.

You can work out your tax residency status by using our residency tests this opens in a new window. You only need to satisfy one of the tests to be an Australian resident for tax purposes.

What does my tax residency mean for me?

I’m an Australian resident for tax purposes

If you’re currently in Australia and plan on staying permanently, then you’re most likely an Australian resident for tax purposes. This means:

• You can claim the tax-free threshold.
• You’re taxed on your worldwide income.
• You may be able to apply the main residence exemption for CGT purposes.
• You qualify for the CGT discount.
• If you’ve paid tax on income in another country, you may be able to claim a foreign income tax offset these opens in a new window in your return.

I’m a foreign resident for tax purposes

If you come to Australia to work temporarily, you’re probably a foreign resident for tax purposes.

As a foreign resident for tax purposes:

• There’s no tax-free threshold, that means you pay tax on every dollar this opens in a new window you earn at a higher rate than Australian residents.
• You’ll need to declare all income earned in Australia (usually your employer reports this to us on your behalf).
• You can claim an exemption from paying the Medicare levy in your tax return.
• Foreign tax residents are only subject to CGT on taxable Australian property.
• You’ll be taxed at a different tax rate if you are on a Working holiday maker  or a Pacific Australia Labour Mobility scheme (PALM) visa.

As a foreign resident, you might be able to claim your departing Australia superannuation payment (DASP) when you leave.

I’m also a temporary resident

If you or your spouse aren’t Australian residents according to Services Australia, and you have a temporary visa, then you’re likely a temporary resident as well as a foreign or Australian resident for tax purposes.

As an Australian temporary resident, the way you’re taxed is adjusted so that:

• You’ll declare all income earned in Australia (including dividends from Australian shares and interest your Australian bank account earns).
• Any income earned as a working holiday maker will be taxed depending on which country you‘re a citizen or national of.
• You’ll declare your worldwide income only from some employment or services you perform – other foreign income doesn’t need to be declared.
• You’re only subject to CGT on taxable Australian property.
• Capital gains and losses for other CGT assets don’t need to be declared.
• Leaving Australia doesn’t trigger a CGT event.
• If you cease to be a temporary resident but remain an Australian resident, you’re taken to have acquired your CGT assets (that aren’t taxable Australian property, or were originally acquired before 20 September 1985) for their market value at that time.

As a foreign temporary resident, the way you’re taxed isn‘t usually modified (aside from certain employment income like what you earn on a WHM visa). There’s also no change for most CGT assets.

As a temporary resident, you may be able to claim your departing Australia superannuation payment (DASP) when you leave.

What does becoming a foreign resident for tax purposes mean for capital gains tax (CGT)?

It’s all about timing! When your residency status changes from being an Australian resident, a CGT event  occurs at that time. This means you’re taken to have disposed of your CGT assets (that aren’t taxable Australian property). When this happens, you’ll still be able to claim the 50% CGT discount for that event for assets you’ve owned for more than 12 months.

However, you also have the option to choose not to dispose of your CGT assets that are not taxable Australian property (TAP) at that time, in which case all your non-TAP CGT assets will become taxable Australian property.

After you’ve stopped being an Australian tax resident, the full CGT discount won’t be available for future CGT events for any assets you acquired after 8 May 2012.

If I’m a foreign resident for tax purposes, do I have to pay the Medicare levy and the Medicare levy surcharge (MLS)?

Find out if you can claim an exemption from paying the Medicare levy and the MLS, plus everything you need to know about completing the Medicare questions on your tax return.

How can I get a certificate of tax residency?

If you have income from overseas, the foreign tax department might ask for a certificate of tax residency to prove you’re already paying taxes in Australia.

Download the Certificate of Residency and Certification of Overseas Tax relief request  form from ATO’s website. You’ll need to mail the completed form to ATO, unless you have an ABN or WPN, in which case you can submit the form online through Secure mail .

You should receive your certificate in 28 business days.

What if my tax residency status changes?

When your tax residency status changes part-way through a financial year, you’ll be entitled to a pro-rata tax-free threshold based on the number of months you’ve been a tax resident of Australia. Don’t worry, the ATO work all this out for you when you submit your tax return. All you need to do in your return is:

• let ATO know the date your tax residency status changed, and
• the number of months you were an Australian resident for tax purposes.

You may also need to give your employer a new withholding declaration.

How do I update my tax residency status?

You only need to tell us your residency status when you lodge your tax return but remember if it changes to tell your employer and complete a new withholding declaration so they withhold the correct amount of tax.

If you were an Australian resident for tax purposes for part of the financial year, still answer ‘yes’ to the question ‘Are you an Australian resident for tax purposes?’

You’ll then enter the date your tax residency changed and how many months you were an Australian tax resident at question A2.

What do I do if my employer has been incorrectly taxing me as a foreign resident for tax purposes?

You can let your employer know to change the amount of tax they withhold for you by filling out a new withholding declaration this opens in a new window.

If they’ve withheld too much tax because of this mistake, it’ll be included in your refund (if you’re entitled to one).

I’m working remotely, how do I pay tax?

Once you know your tax residency, you’ll be able to figure out what remote working means for your tax return.

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.