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Foreign Residents working in Australia

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:

  • have always lived in Australia
  • have moved to Australia to live here permanently
  • have been in Australia for more than half of the financial year (unless your usual home is overseas and you do not intend to live in Australia)
  • have been in Australia continuously for six months or more and have been living in the one place, in the one job.

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:

Resident

Non-resident

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 
medical expenses)

Not liable to pay Medicare Levy (but
cannot make claims)

Bank account interest assessed at usual
rates

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

32.5

32.5c for each $1

$80,001 - $180,000

37

$26,000 plus 37c for each $1 over $80,000

$180,001 and above

47

$63,000 plus 47c for each $1 over $180,000

 

Resident Tax Rates

General individual income tax rates for residents

$0 - $18,200

0

Nil tax payable

$18,201 - $37,000

19

19c for each $1 over $18,200

$37,001 - $80,000

32.5

$3,572 plus 32.5c for each $1 over $37,000

$80,001 - $180,000 37 $17,547 plus 37c for each $1 over $80,000
 
$180,001 and above 47 $54,547 plus 47c for each $1 over $180,000
 

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

Weekly earnings
(x) less than
$

a

b

1538

0.3250

0.3250

3461

0.3700

69.2308

3461 & over

0.4700

415.3846


·         The formulas comprise linear equations of the form y = ax – b, where:

  • o    y is the weekly withholding amount expressed in dollars
  • o    x is the number of whole dollars in the weekly earnings plus 99 cents
  • o    a and b are the values of the coefficients for each set of formulas for each range of weekly earnings
     

HandHandy Link:

  • If you think you need to determine your residency status, the Tax Office has put together an online interactive tool that will help you determine your status.