In order to know your tax responsibilities in Australia, you have to know whether you are considered a resident or non-resident for Australian tax purposes. This may seem clear but if you are working overseas, travelling often, or you do not have a permanent home in Australia, you may think you are exempt from Australian taxation laws when you really aren’t.
What is a Resident for Tax Purposes?
If you reside in Australia, you have a home and you’re settled in Australia, it is quite clear, according to the ATO (Australian Taxation Office), that you are considered a resident and that you are subject to Australian taxation laws. But if your situation is not as clear, you might want to check with the ATO to see whether you are considered a resident.
The ATO has a number of detailed residency calculators on their website which you can access here. Remember that you only need to pass one of these to be considered as an Australian resident for tax purposes.
The reason why residency for tax purposes is complex is because there is not one defining factor that confirms your status. The ATO looks at a number of factors in your circumstance to define your status. Your citizenship may have nothing to do with your tax responsibilities. Even if you are a citizen of another country, you can be considered a resident of Australia for tax purposes, depending on your activities.
For example, you can be considered a resident if you:
- Perform your day to day activities, especially those of a leisurely kind, in Australia, even if you are moving often without a permanent residence.
- Have a business, assets, or a family in Australia, even if you stay elsewhere.
- Have the intention to stay in Australia as soon as you arrive.
Some of your responsibilities as a resident for tax purposes include:
- Lodging tax returns
- Declaring all sources of income receivedworldwide, meaning all income earned in Australia as well as overseas
- Paying the 2% Medicare levy, which automatically comes out of your income, if you earn over $18,000 a year
What is a Non-Resident for Tax Purposes?
If you do not pass the tests provided by the ATO, you may be considered a non-resident (also called “foreign resident” meaning that you do not need to claim your overseas income in your Australian tax return. But it’s best to have the ATO or an accountant look into your situation to make sure you do not make an incorrect conclusion.
As a non-resident for tax purposes, you will have to lodge a tax return if you earned any income in Australia (eg. rental income from investment properties located in Australia, shares traded on the Australian Securities Exchange, etc.).
Why Does All This Matter?
In 2016, a Malaysian investor suffered the consequences of assuming his non-residency status for his tax responsibilities in Australia. Sir Yii Ann Hii was faced with an order from the ATO to pay $50m in taxes because ATO had considered him to be an Australian resident for tax-purposes for a number of years, simply because his wife and children lived in Australia. Sabrina Ong, who is a partner here at Fortiz Accountants, commented on this case, informing of the many ways that the ATO can decide your residency status. Read more here.
Your Worldwide Tax Responsibilities
If you are a resident and you are claiming income from Australia and overseas, it’s possible that that income overseas is also subject to taxation laws in its source country. Australian’s double tax agreements (DTA) ensures that you don’t have to get taxed twice for the same income.
For a comprehensive list of countries with a tax treaty with Australia, click here.
What You Should Do Now
Know your status as soon as possible to avoid incurring payments that you are not aware of. Refer to the ATO’s comprehensive residency tests (above) to see whether you are subject to paying Australian taxes and to know what you have to claim in your next tax return. If you are still unsure about your tax responsibilities as a resident or foreign resident, an accountant will be able to help you!
Disclaimer: This blog post has been simplified to cover the common scenarios. This should not be construed as advice from Fortiz Accountants. There are many other factors to be considered and each case is unique. Therefore, we encourage readers of this blog post to contact Fortiz Accountants for assistance with their specific circumstances.
Our accountants are well-versed in the complexities of Australian taxation laws. If you are unsure about your residency status, or you’re concerned about income from employment and investments overseas, contact our accountants here at Fortiz Accountants! As registered tax agents, we can also help you prepare and lodge your tax returns. Most importantly, we can help you to ensure that you fulfil all your tax obligations in Australia.
Contact us and see how we can assist you!