Your residency status determines how much tax you will have to pay.
If you are an Australian resident for tax purposes you are taxed on worldwide income. If you do not qualify as a resident, you pay tax only on Australian source income.
In addition, your residency status governs your tax rates. A higher rate of tax is applied to a non-resident’s taxable income and non-residents are not entitled to a tax-free threshold.
There are several tests used to determine your residency. The primary one is the resides test. Under that test, you are a resident if you live in Australia. Tax law doesn’t define the word reside, so the Australian Taxation Office (ATO) uses the ordinary meaning. The agency notes on its Web site that The Shorter Oxford Dictionary. defines reside as “to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place.”
The Tax Office considers several factors when it determines residency, including:
- Intention or purpose of your presence;
- Family and business or employment ties;
- Maintenance and location of assets; and
- Social and living arrangements.
Under those categories, the ATO may consider a multitude of other factors such as where you keep bank accounts, where you have a residence and register your car, whether you have family here and enrol your kids at a local school, and how long you have lived in the country. Your nationality is generally irrelevant although in borderline cases it may be a factor. It is possible for you to be a resident in both Australia and another country.
Even if you don’t satisfy the requirements for the resides test, you may still be a resident for tax purposes if you meet the:
- Domicile test;
- 183 rule; or
- Superannuation test
The Domicile Test
You are considered a resident under the domicile test unless the tax office decides that your permanent place of abode is outside Australia. The phrase permanent place of abode is complex and has been the subject of many complex case law interpretations.
Your domicile is the place the law considers your permanent home, such as where you were born. You can have more than one residency but only one domicile.
The ATO generally interprets permanent to mean not temporary rather than to mean forever. The domicile test would likely be applied if you went to work overseas for a long period of time. If you go overseas and set up a residence that is not temporary, you would not be considered an Australian resident under this test.
The 183 Day Rule
You may be considered a resident if you are present in the country for 183 days during the tax year. You don’t have to be here continuously. As long as the days add up to 183 in the tax year, you generally satisfy the test.
However, if your “usual place of abode” is outside Australia, you may not satisfy the rule even if you are in the country for 183 days. In general, your usual place of abode must display attributes of a residence rather than a temporary accommodation for a traveller.
The Superannuation Test
This test is only relevant to current Commonwealth government employees who are members of the superannuation scheme established under the Superannuation Act 1990, or are eligible employees for the purposes of the Superannuation Act 1976. If you qualify under this test, your spouse and any children under the age of 16 would also be considered Australian residents for income tax purposes.