Australian Tax

Is Tax Residency the same as Citizenship?

Australian Tax

Why is it important to determine your Tax Residency?

Australia’s tax laws treat Australian residents and Non-Resident differently.  Australian tax residents are generally taxed on all of their worldwide income.  Non-Australian tax residents are only taxed on income from Australia.  Hence determining your tax resident status correctly will prevent accidental tax evasion or overpayment of tax.

Is Tax Residency the same as Citizenship?

The Australian Taxation Office uses different rules from the Department of Home Affairs, which means you do not need to be an Australian citizen or permanent resident to be considered a tax resident. Similarly, you can be treated as a foreign resident for tax purposes even if you are an Australian citizen. Generally speaking, an Australian resident for tax purposes is a person who ordinarily resides in Australia.

How to determine my tax residency status?

The ATO provides three statutory tests to determine your tax resident status.

I. Resides Test

The primary Test that identifies a tax resident is called the Resides Test — if you live in Australia, you are considered an Australian tax resident. You don’t need to run the other two tests. Note: The ATO’s definition of residence here comes from the Oxford Dictionary: “to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place”

Even if you don’t pass the Resides Test, you will still be considered an Australian tax resident if you satisfy the three statutory tests.

II. Domicile Test

If your domicile (i.e., your permanent domicile) is in Australia, then you are an Australian resident unless the ATO is satisfied that your permanent domicile is outside Australia. Domicile is your permanent home by law. For example, it could be the place where you were born or the place you chose (with the intention of living permanently).

III.183-day test 

The test only applies to individuals who have just arrived in Australia. Under this test, you will be considered an Australian tax resident if you have actually lived in Australia for more than half of your income year, either continuously or intermittently.

What are the different residents and the related taxes?

If you meet any of the residency tests above then you are an Australian Resident for tax purposes – this means you must declare all your income from anywhere in the world

If you do not meet any of the residency tests above then you are a [Foreign Resident] – this means you have no tax-free threshold and only need to file tax returns on income and gains made in Australia, including any capital appreciation of taxable Australian property

If you hold a Temporary visa and you or your partner are not an Australian citizen or permanent Resident, you are a [Temporary Resident] – this means you are normally only required to declare your income and gains in Australia.

Working Holidaymaker – Normally considered a Foreign Resident, this means that the first $45,000 of your Australian income is taxed at 15%, with the remainder taxed at ordinary rates

Is it possible for me to be a tax resident in both countries?

It is important to note that the Australian Tax Act only determines whether you are a resident of Australia for tax purposes, not the specific country. Therefore, dual tax residents are common. However, if you are a dual resident of both Australia and another country with which Australia has a double tax agreement, the Treaty tie-breaker test will be used to determine which country has the right to tax you.

More questions?

If you have any questions about tax residents and any accounting/tax questions, please consult our accountants immediately to answer them for you!

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