Income tax
Australian resident for tax purposes
An Australian resident for tax purposes is a person or company that meets one of the legal residency tests and is taxed on worldwide income, with access to the tax-free threshold.
Whether you are an Australian resident for tax purposes decides how you are taxed. Residents are taxed on income from all sources, in Australia and overseas, and are entitled to the tax-free threshold and the resident tax rates. Foreign residents are generally taxed only on Australian-sourced income and at different rates. Residency for tax is a separate test from citizenship or visa status.
For individuals, the ATO uses four tests: the resides test, the domicile test, the 183 day test and the Commonwealth superannuation fund test. In simple terms, you are generally a resident if you reside in Australia in the ordinary sense, if your domicile is in Australia and you do not have a permanent place of abode overseas, if you have been in Australia for more than half of the year and do not have a usual place of abode elsewhere, or if you are a member of certain Commonwealth superannuation schemes.
The resides test looks at all the facts. It considers things like the intended length and purpose of your stay, whether you have family in Australia, business ties, where your assets are located, and your social and living arrangements. A person who moves to Australia intending to stay for more than six months and takes up work will usually be treated as a resident from arrival.
For companies, residency depends on where the company is incorporated, or where it carries on business and has central management and control or voting power controlled by Australian resident shareholders. A company incorporated overseas can still be an Australian resident for tax if it meets the conditions. Trusts and partnerships have their own tests.
Residency matters for many tax outcomes. Residents can use the CGT discount, the main residence exemption and the tax-free threshold, and they pay the Medicare levy. People leaving or arriving partway through a year may be treated as a resident for only part of it, and special rules apply to how the threshold and deductions are shared.
Residency for income tax is different from being a resident for GST, which uses concepts such as being connected with Australia and registered for GST. A person may also be treated differently for Medicare or immigration. The ATO provides a residency tool on its website. This is general information only, so confirm your status with the ATO or a registered tax professional.
Worked example
Kenji moves to Sydney on 1 October on a two-year work contract, renting a flat and bringing his family. The ATO would generally treat him as an Australian resident for tax from arrival, because he is residing here. He pays resident rates on his Australian income from October and, for that period, on any foreign income too, and he can claim the tax-free threshold, with part-year rules applying to the first year.
Practical tips
- Use the ATO residency tool on its website if your circumstances are unclear, since it applies the legal tests.
- Remember residency for tax is separate from citizenship, visa type and Medicare eligibility.
- Tell the ATO if your status changes when you arrive or leave, as it affects your rates and entitlements.