If you’re a traveller, backpacker or expat coming to Australia, or an Australian citizen heading overseas, you may need to figure out your residency status for tax purposes. The Australian Tax Office (ATO) doesn’t have the same rules as the Department of Home Affairs, so while you may not be a resident of Australia in their eyes – for tax purposes, the ATO may see it differently.
From the perspective of the ATO, you can be an Australian resident for tax purposes without being an Australian citizen or permanent resident. You may also have a visa to come to Australia, but not be a resident for tax purposes. This can be a little confusing to work out for yourself, but luckily, there are many residency tests available on the ATO website to help you figure out whether or not you are considered an Australian resident in the eyes of the tax office.
By taking the residency tests, you will be able to determine where you fall out of these three categories:
- An Australian resident for tax purposes
- A foreign resident, or
- A temporary resident
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There are four different tests to determine whether or not you are considered an Australian resident for tax purposes. If you meet even one of these tests, you are considered a resident for tax purposes – you are not required to meet the requirements of all four. The ATO has these tests and tools available on their website that help you figure out your circumstances.
The Resides Test
The meaning of ‘reside’ is to ‘dwell permanently, or for a considerable time’. Your residency status can be determined by a few factors, such as: physical presence, business or employment ties, living arrangements, location of assets, family, and more.
Your personal circumstances very much relate to your residency status. If you are settling into Australia in a way in which your day-to-day activities look much like your days before entering Australia, you may be considered a resident.
Your intentions around residency can be shown through your actions while living in Australia. If you express that you’re not intending to stay in Australia, but you have a long-term lease on a property, social obligations, owned assets (such as a car), or a work contract which will require a lengthy stay – you may likely be considered a resident.
This is because you have an established life in Australia, and your habits and actions after a period of time eventually build what is referred to as ‘the ordinary course of your life’. And the place in which you carry out the ordinary course of your life, is generally considered your residence.
The Domicile Test
You are considered an Australian resident for tax purposes if your domicile – your permanent home – is located within Australia. There are a few reasons why you may fail the resides test, such as travelling or working overseas for a considerable period of time, this is where the domicile test can be relevant.
You can only have one domicile by law, but may be a resident in two or more places. While your domicile is considered to be your ‘permanent place of abode’, this does not have to mean ‘forever’. The law sees your permanent home as one that is not purely temporary, or transitory.
If you’re travelling, but have no other permanent place of living in any other country, then your domicile would be considered to be Australian.
There are a few different types of ‘domicile’:
- Domicile by origin: which is assigned to every person at birth.
- Domicile by choice: this is where there is a change of residence by choice, with the intention of making the change indefinitely or permanently.
- Domicile by operation of law: this is imposed by law (eg. an infant’s domicile will change with that of its parents).
In general, if you have always lived in Australia, you will keep your domicile here even while you are travelling to other countries – this only changes if you choose to permanently migrate overseas.
The 183-Day Test
This test only really applies to people arriving into Australia from overseas. If you are present in Australia for more than half of the financial year, whether permanently or intermittently, you may be considered a resident of Australia for tax purposes – unless you can prove to the ATO that your permanent place of abode is still outside of Australia.
The Superannuation Test
This test, like the 183-day test, is a statutory test. It applies to and covers Australian government employees. If you are recognised as an Australian resident under the superannuation test, your spouse (or partner) and any children under the age of 16 are also considered residents.
This test applies to those who are contributing members to the Public Sector Superannuation Scheme (PSS), and the Commonwealth Superannuation Scheme (CSS). It was included in the residency tests to ensure that Australian government employees who are working abroad in Australian posts are treated and recognised as Australian residents.
If you’ve satisfied any of these residency tests, you are what is considered an Australian resident for tax purposes, and you will be required to declare all of your income in Australia – even income earned from overseas sources, and even if you have paid foreign tax already. Though, the foreign income tax offset is generally applied to help ease the burden of being double taxed on the same income.
If you do not meet these residency tests, you are not considered an Australian resident for tax purposes, and may instead be considered as a foreign resident. Foreign residents are still required to lodge a tax return, and pay tax on all Australian-earned income.
If you hold a temporary visa, and neither you or your spouse is an Australian resident, you are considered a temporary resident. Temporary residents are only required to declare income derived in Australia, as well as any income earned while overseas for short periods while you are still a temporary resident of Australia. All other foreign income does not need to be declared.
All of these tests are available on the ATO’s website, and will assist you in determining your residency status for tax purposes as accurately as possible, and will help make your tax obligations clear.