NON-RESIDENT INDIVIDUAL TAX RATES
Non Resident Of Australia For Tax Purposes
“Non-resident” for tax purposes essentially means not being “resident”
Tax residency is a net. Determining non-residency status requires a look at what the residency net covers, and where the edges are.
Being a tax resident of Australia provides access to a lower tax scale and the tax-free threshold, although the medicare levy is added unless there is some basis of exemption (such as for ADF members).
It also means that (in general) your non-Australian income is caught in the Australian tax net.
As a general principle, and subject to exceptions, tax residents are taxed on their world-wide income, non-residents only on their Australian-sourced income.
Draft rulings issued by the tax office conclude that foreign resident beneficiaries are taxable on distributions of gains from Australian non-fixed trusts, which might otherwise have not been taxable if the beneficiary had received the gains directly rather than through the trust.
New Tax Residency Rules for Individuals
A Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals was released on 6 October 2022.
The draft ruling is indicated to have application for periods both before and after the date of release.
Comments to the ATO on the draft ruling are required due by 25 November 2022.
The Board of Taxation has undertaken a review of the current individual tax residency rules, and recommended a more objective process for determining residency.
Budget 2021 announcements contain a proposal to simplify the determination of residency, by the primary application of a 183 day test, and with secondary application of objective and measurable criteria.
When? Legislation is required to give effect to the changes, on which basis the likely starting date would be 1 July 2022 or 2023.
- Board of Taxation
- Reform of the Income Tax Residency Rules for Individuals – BDO
- Proposed changes to the tax residency provisions for individuals explained – Moore Australia
- Changes to the Australian Tax Residency Rules Affecting Expats – Atlas Wealth
The test for tax residency is separately determined each tax year, based on the facts and circumstances.
Primary Test of Australian Tax Residence
The primary test of tax residence, is whether you “reside” in Australia according to the ordinary meaning.
It is not the same as, nor does it directly depend on, your immigration or visa status, although the holders of temporary resident visas are subject to specific rules (mentioned below).
The meaning of “reside” is not legally defined, and is interpreted from its ordinary dictionary meaning and as explained in court cases. In practice the Tax Office give weight to a number of behavioural and circumstantial indicators. For further on this see Residency – the resides test.
For residency of companies, see here.
Domiciled in Australia
An individual is an Australian resident for tax purposes if they are “domiciled” in Australia, unless the Commissioner is satisfied that their “permanent place of abode” is outside Australia.
In Dempsey v FCT  AATA 335 the AAT considered the circumstances of an Australian citizen who worked for 3 years in Saudi Arabia.
Despite keeping significant connections to Australia, including a house, bank account and superannuation, the taxpayer was not considered to a have a permanent place of abode in Australia, and was therefore not resident for the relevant period.
A Federal Court decision in Harding v Commissioner of Taxation appeared to raise the bar for characterisation of “non-residency”, when despite having enduring living and working arrangements in the Middle East for many years, a taxpayer’s retained connections with Australia were judged sufficient for him to be considered resident of Australia for tax purposes.
However this decision was reversed on appeal and the ATO has been refused special leave to appeal to the High Court- see commentary here: Harding case on appeal — taxpayer wins and here: Update on tax residency – High Court refuses to grant ATO special leave to appeal in Harding and Update on tax residency of Australian expats.
A Decision Impact Statement has been released by the Tax Office. See: Decision impact statement – Harding v Commissioner of Taxation.
Tax ruling IT 2650 Income tax: residency – permanent place of abode outside Australia has now been withdrawn upon the issue of Draft Taxation Ruling TR 2022/D2.
Spending more than 183 days in Australia can make a person an Australian resident. However, being outside Australia for more than 183 days in a tax year outside of Australia does not necessarily make a person a non-resident.
Legal tests of residence
If you don’t “reside” in Australia according to the ordinary meaning, then a series of legal tests are applied which may still deem you to be a tax resident.
The tests are:
- the 183 day test: if you are physically in Australia for more than half the income year, (not necessarily continuously) then you may deemed a tax resident unless it is shown that your usual place of abode is outside Australia and you have no intention to taking up residence in Australia. Backpackers in Australia for more than 183 days on a working holiday visa have been ruled as non-resident on this basis – see AAT cases  AATA 124,  AATA 125 and  AATA 126.
- the domicile test: a “domicile” is the place legally considered to be your permanent home, and is usually more than simply a residence. If your domicile or permanent place of abode is not in Australia, you are not a tax resident
- the superannuation test: – deems Commonwealth government employees to be resident if they are a member of a superannuation scheme established under the Superannuation Act 1990, or if they are an ‘eligible employee’ for the purposes of the Superannuation Act 1976. (See ATO info and examples here).
Temporary tax resident rules
A temporary tax resident is the holder of a temporary resident visa sub-class issued under the Migration Act.
Backpacker Tax – final amendments apply from 1 January 2017
[update 2 December 2016 – the final position]
Following much debate, the government negotiated to reduce the proposed marginal 32.5% tax rate on working holiday maker visa holders (the backpacker tax) to 15% for incomes up to $37,000 from 1 January 2017 under a package of measures passed by parliament. Over $37,000 the normal non-resident tax rates (starting at 32.5%) apply.
The Employer registration deadline was extended to 31 January 2017. For 2016-17 employers need to issue separate payment summaries (group certificates) for periods before and commencing 1 January 2017.
The application charge for working holiday maker visas will also be reduced by $50 to $390, however from 1 July 2017 the rate of tax on the Departing Australia Superannuation Payment (DASP) goes up to 65%. The departure tax (Passenger Movement Charge) is also up by $5.
Progress of legislation:
- Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016 (No 2)
- Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016
- Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016
- Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill (No. 2) 2016
Backpacker tax – earlier announcements
[update 17 May 2016:] The government has announced that the implementation of the backpacker tax is to be delayed until 1 January 2017.
At the same time the Government announced “a comprehensive review” of working holiday makers as a source of labour and related tax, economic and regulatory issues. The review is due to report back by mid-October 2016. See further details of the announcement and links to the enquiry here.
Budget 2015 announcement – the “backpacker tax”: The tax residency rules are to be changed to treat temporary working holiday makers as non-residents for tax purposes, regardless of how long they are in Australia.
If implemented, this means they will be taxed from their first dollar of income – currently at a minimum rate of 32.5% – without the benefit of the tax-free threshold normally available to tax residents.
Young people on working holiday visas will be directly affected by this proposed measure which has attracted some criticism (detailed here) due to the possible impact on the rural seasonal workers job market and the tourism industry.
Being a temporary resident means that:
- your foreign income is not taxed in Australia except employment income earned overseas for short periods while a temporary resident (for which you may be able to claim a foreign income tax offset)
- a temporary resident is not liable to capital gains tax on non-Australian property. (Note: more recently the government has moved to introduce measures to deny foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, although existing properties held prior to this date are grandfathered until 30 June 2019.
- special rules apply to capital gains on shares and rights acquired under employee share schemes
- interest paid to foreign lenders is not subject to withholding tax
Additional temporary resident qualifications:
- you are not a temporary tax resident if you or your spouse are resident according to the Social Security Act 1991
- The Social Security Act 1991 defines an ‘Australian resident’ as a person who resides in Australia as
- from after 6 April 2006, once you have been an Australian resident for tax purposes but not as a temporary resident, you cannot later become a temporary tax resident.
Cessation of temporary tax residence
Ceasing to be a temporary tax resident while continuing as a resident of Australia has the general capital gains tax consequence of bringing taxable property into the CGT net at market value. See CGT and non-residents
More recently the government has moved to introduce measures to deny foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017. Existing properties held prior to this date will be grandfathered until 30 June 2019.
To follow progress of the new measures through parliament see Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018
Note also that there are limited exemptions for income earned by Australian tax residents overseas. See Exempt foreign employment income
Temporary residents and the Medicare Levy
For temporary residents who are not entitled to Medicare support, an exemption certificate is available to avoid the medicare levy being paid on a tax assessment.
Temporary residents who were residents of a Reciprocal Health Care Agreement country are entitled to Medicare and therefore not entitled to an exemption. For further information see Dept Human Services Medicare Entitlement
ATO residency tool
The ATOs online residency decision tool is a good place to start for an assessment of residency status. However note the broad disclaimer – the ATO will not be bound by the residency tool answer.
Australian Super Funds Abroad – a Minefield
The Australian super fund structure is somewhat unique, which can lead to uncertainties and tax risks abroad.
This cautionary tale raises far more questions than it answers, but is nevertheless a great read.
Australian Expats – becoming non-resident
More recently the government has moved to introduce measures to deny foreign and temporary tax residents access to the CGT main residence exemption from 7:30PM (AEST) on 9 May 2017, however existing properties held prior to this date will be grandfathered until 30 June 2019. To follow progress of the enabling legislation see Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018.
Recommended resource for Australian expats overseas: Essential Property tax information for australian ex-pats (pdf)
Expats in China
- Fact Sheet: Early return from foreign service due to COVID 19 – foreign employment income
- Resident V Non-Resident Tax Status – Why Should I Care? – Coleman Greig Lawyers
- Recent developments in the tax residence of individuals, companies and trusts (Pointon Partners – April 2019)
- Foreign Investment in Australia Policies
- Australian Visa Status
- Capital Gains Tax – CGT and non-residents
- Taxation Ruling: TR98/17 Income tax: residency status of individuals entering Australia (now withdrawn – see Draft Taxation Ruling TR 2022/D2)
- Tax Residence of Individuals & Companies (pointonpartners.com.au）
- Individual Tax Rates – Residents
Residency for tax purposes depends on a combination of arbitrary rules, and an interpretation of factual circumstances. Please consult professional advice before taking action.
This page was last modified 2022-10-06