Note: The information in the articles below is of a general nature only. It may not be relevant to your specific individual circumstances. You may need to engage ezytaxback.com Pty Ltd to provide you with specific advice to suit your specific circumstances.
Here are our recommendations on Australian Tax Returns for Non-Residents. Australian tax laws for non-residents can be confusing. They aren’t as clearly laid out as in many other countries. Whether you are an Australian Resident, visitor to Australia, or foreign resident with investments within Australia, you must declare within an Australian Tax Return any money that you have earned while in Australia.
Lodge a tax return if you are or have:
- a non-resident with $1 or more of Australian income
- an Australian Resident or Temporary Resident with $18,200 or more Taxable Income
- PAYG Tax withheld from your income
The majority of employees or individuals fall into at least one or more of these circumstances and must lodge an Australian Tax Return. To start, you will need to determine your residency status.
Determining your Residency Status
The first step to completing your non-resident tax return in Australia is to determine your residency status for tax purposes. Your Residency Status for tax purposes is NOT your migration status or citizenship, nor is it related to this.
You are a resident for tax purposes once you have earned income in Australia. Therefore you must lodge a tax return, regardless of whether you’re a resident or non-resident in your migration status. The Australian Taxation Office has its own set of rules and tests which determines your residency status for tax purposes.
Your residency status within Australia determines the rate of tax you pay on your Australian income. It also determines whether you pay tax on your foreign income as well. Australian non-resident tax rates are higher than standard resident rates. Australian Tax Law determines if an individual is an Australian Resident for Tax Purposes by using four tests. An individual considered a resident for Tax Purposes is they satisfy at least one test.
The Resides Test is the first and most common test. It checks whether you reside in Australia or not. If you do, then you are a resident. The word ‘resides’ does not have a particular definition as per Australian Income Tax Legislation; it is merely the standard definition:
‘…to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place…’
Read on for the other three tests which are also available if you do not satisfy the Resides Test. These Statutory tests can also assist you in working out your tax residency if you’re unsure whether you entirely meet the Resides Test or not.
The Domicile Test
The Domicile Test defines the country in which an individual has a permanent home that they live in, or to which there is a meaningful connection. An individual is a resident for tax purposes if their Domicile is in Australia. An individual is a non-resident for tax purposes if their domicile is elsewhere.
The 183 Day Test
This test is self-explanatory. If you are residing in Australia for 183 days (half the income year) or more, continuously or with breaks, you are a resident. The only exception to this is if you have a proven domicile elsewhere and there is no intention of taking up residency in Australia.
The Superannuation Test
You are an Australian Resident for Tax Purposes if you are:
- A member of the superannuation scheme established under the Superannuation Act 1990, or
- An ‘eligible employee’ for the Superannuation Act 1976
For further information and specific examples refer to – www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/
Tax Effects due to your Residency
Now that you have worked out your residency status, you will be able to understand the tax consequences of your situation and if Australian non-resident tax will apply to you.
If you are an Australian Resident for tax purposes, you must include all income that you have earned both in Australia and other countries. Double taxation occurs when tax applies to your foreign income in Australia and in the source country.
Thanks to tax treaties and agreements between Australia and 40 other countries, foreign income is subject to credits and exemptions in the form of Tax Offsets. Tax Offsets are different from Tax Deductions. Tax Offsets apply directly to your taxable income, which reduces the amount of tax payable on your income.
Every dollar of a tax offset reduces the tax payable on your income by one dollar. Therefore, you receive the full offset amount as a benefit instead of a percentage of the amount depending on your tax rate.
If you are an Australian Resident for Tax Purposes on a temporary visa, you are considered to be a temporary resident. Temporary residents do not have to declare all income earned worldwide. You should only declare income earned within Australia in addition to any income from overseas employment that you received while you were an Australian resident for tax purposes (these will likely be shorter periods).
Australian Residents and temporary residents qualify for standard Australian individual tax rates and the tax-free threshold. The Tax-Free Threshold is $18,200. You will only pay tax on amounts greater than $18,200.
Non-Residents must also lodge a tax return if they earn income while in Australia. However, non-residents only have to include income earned in Australia and do not have to declare foreign income, including income from employment in other countries.
Australian non-residents are not entitled to the tax-free threshold and as a result pay higher tax rates than residents. This means that Tax in Australia for non-residents is charged from the first dollar of income they earn.
Working Holiday Makers
Working Holiday Makers used to be considered Temporary Residents of Australia (provided the length of their stay and employment activities allowed them to pass the residency tests outlined earlier). However, as of 1 January 2017 the ATO introduced new legislation. From this date, Working Holiday Makers, (those on 417 and 462 visas), are taxed as non-residents of Australia. If their employers have registered with the ATO, they can withhold tax on their wages. This is then reflected in the individual’s payment summary and in Australian tax returns for non-residents.
Completing your Tax Return
Both Australian residents or non-residents can complete their Australian Tax Returns with us. When completing your online tax return, you will be asked if you are an Australian Resident. Simply answer Yes or No, based on the tests outlined earlier. You will then enter your income and deductions that you have earned. If you are required to include foreign income, there is a special ‘Foreign Income’ section that will clearly request these details.
Declare any foreign income earned while in Australia in this section separate to your income. To avoid incorrect taxation, we will make sure that you receive the appropriate tax exemptions and credits on your foreign income.
If you have investments overseas and are an Australian Resident, you must include the income received from these investments in your tax return. When including offshore investments in your Australian Tax Return, you may need to convert this income to Australian Dollars.
The exchange rate for the currency conversion matches the exchange rate from the original investment payment date. Always remember that foreign income counts for all income earned offshore. This includes the following:
- Pensions and annuities
- Employment income
- Investment income
- Interest in overseas bank accounts
- Interests in foreign entities
- Rental income from overseas property
- Capital gains from the sale of overseas investments
- Foreign business income
- Capital gains on overseas assets
It is an offence in Australia not to declare all income earned; if you do not declare income (Australian or foreign), you will receive a penalty and a request to report this information.
If you need more help with Australian Tax Returns for Non-Residents, contact our friendly Customer Care team. They will assist you in getting the most of your personal income tax return. So remember the golden rule for tax deductions: for an expense to be tax-deductible there must be a relationship between your work-related expense and you earning your income. We have created a handy tax calculator to help estimate your return.