If you’re an Australian resident, you need to file a tax return with the Australian Taxation Office and declare all income that you’ve received not only in this country but anywhere in the world for the last financial year. This also means that you need to pay the Medicare levy and are entitled to the tax-free threshold.
If you are not an Australian resident...
You will only pay tax for income that is generated in the country. You are also not required to pay the Medicare levy, so you are not eligible to get Medicare health benefits. Likewise, you are not entitled to the tax-free threshold.
Bear in mind that the ATO and the Department of Immigration and Border Protection vary in standards used to identify whether an individual is an Australian resident or not.
In this article, learn how to determine if you’re an Australian resident or a foreign resident for taxation purposes:
ATO Residency Tests
The ATO uses several tests to find out if a person is an Australian resident or not. The main test of tax residency is called the resides test. It covers different factors such as the purpose of a person’s presence in the country, family and business ties, bank accounts, as well as social and living arrangements. These are assessed to find out whether an individual resides in the country. If that’s the case then he/she is a resident for taxation purposes.
If the individual fails the resides test, he/she needs to meet the requirements of any of these tests:
- Domicile test – You will be considered an Australian resident for tax purposes if your permanent residence is in the country.
- 183-day test – In this test, the individual should be in Australia for at least half of the income year, regardless of whether they are present in Australia continuously for half a year or with breaks.
- Superannuation test – This is for employees of the Australian Government who work overseas at an Australian post. This is to ensure that they are considered Australian residents for taxation purposes.
So what if you are not an Australian resident? This means that you will only pay tax for income that is generated in the country. You are also not required to pay the Medicare levy, so you are not eligible to get Medicare health benefits. Likewise, you are not entitled to the tax-free threshold.
It can be a bit challenging to understand income tax in Australia. It would help if you do some research or seek tax advice from a qualified individual.
Do you have other ideas about income tax in Australia? Share your insights in the comments section.