One of the very first questions you are asked on your tax return is: "Are you an Australian resident for tax purposes?" It may seem an unusual or unnecessary question, but the Tax Office wants to get this one cleared up early, as it makes a big difference to everything else that follows.
We have come across many clients who incorrectly think that no matter what, foreign residents get all their tax back – this couldn’t be any further from the truth.
The Tax Office are cracking down on this – and are cross checking foreign residents arrival and departure dates with customs to ensure they have answered the simple question “Are you an Australian resident for tax purposes” correctly.
If you are a foreign resident working in Australia, or are employing foreign residents – you should read this article to ensure you are in line with the tax office views.
While there are many ways of determining if your personal situation makes you a "resident" or a "non-resident" for tax purposes generally, you are an Australian resident for tax purposes if you:
If a foreign resident is to be classed as an Australian Resident for tax purposes, it is usually dot point 4 that gets them through. If they haven’t been living in the one place in Australia and in the one job for six months or more, then for tax purposes they should be deemed as foreign residents.
Advantages and disadvantages
Non-residents pay tax at much higher rates than residents, and any employer paying wages to a non-resident should be withholding tax at the foreign resident rate and not claiming the tax-free threshold.
Other differences include:
Better tax rates
Pays more tax for every dollar
Taxed on global income
Only taxed on Australian income
Pay Medicare levy (and can claim on
Not liable to pay Medicare Levy (but
cannot make claims)
Bank account interest assessed at usual
Bank interest taxed at flat 10%
Liable for capital gains tax
CGT only on Australian 'real property',
not shares or units
Non-Resident Tax Rates
General individual income tax rates for non-residents
$0 - $80,000
32.5c for each $1
$80,001 - $180,000
$26,000 plus 37c for each $1 over $80,000
$180,001 and above
$63,000 plus 47c for each $1 over $180,000
Resident Tax Rates
General individual income tax rates for residents
$0 - $18,200
Nil tax payable
$18,201 - $37,000
19c for each $1 over $18,200
$37,001 - $80,000
$3,572 plus 32.5c for each $1 over $37,000
Plus 2% Medicare Levy.
If you are an employer of a Non-Resident, tax should be withheld using the following formula:
Foreign residents –Scale 3
(x) less than
3461 & over
· The formulas comprise linear equations of the form y = ax – b, where: