How to determine your residency, how it affects you, and what to do if it changes
If you’re a working holidaymaker visiting Australia, you’ll probably need to file taxes. But before you can lodge your return with the ATO, or even prepare it, you’ll first have to figure out if you are an Australian resident for tax purposes.
Who qualifies as a resident?
Residency for tax purposes is different from immigration residency, so you’ll have to make a fresh determination when you do your taxes. Even if you are the citizen of a foreign country you may in fact qualify as an Australian resident for tax purposes.
You are a resident for tax purposes if you
- have always lived in Australia
- moved to Australia and now live here permanently
- have been in Australia continuously for six months or more and for most of that time you worked the same job and lived in the same place
- 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
- go overseas temporarily and you do not set up a permanent home in another country, or
- you are an overseas student who has come to Australia to study and are enrolled in a course that is more than six months long.
The Determination of Residency tool on the ATO site can help you make the determination if there’s any ambiguity.
It’s a good idea to figure out your residency status early on so you can make sure your employer is withholding taxes at the appropriate rate.
What difference does it make?
Residency makes a big difference in terms of how you are taxed.
First off, residents are taxed on their worldwide income. Nonresidents, on the other hand, are taxed only on their income from Australian sources.
Residency also changes the tax rate you have to pay. Starting on 1 July 2012, the marginal tax rate for Australian nonresidents earning less than $37,000 will shoot up from 15% to a whopping 32.5%. This means that all Australian nonresidents making less than $80,000 are taxed at 32.5%.
Australian residents, by contrast, aren’t taxed at all beneath an income threshold of $6,000, are taxed at 15% between $6,001 and $37,000, and at 30% between $37,001 and $80,000. So, Australian residency can be quite advantageous from a tax perspective.
What if my residency changes?
It’s not uncommon for people who begin the financial year as nonresidents to become residents halfway through. If that’s the case, answer “Yes” on your return to the question, “Are you an Australian resident?”
Your income will be taxed at the same rate as an Australian resident, but because you were a nonresident for part of the year, you will be taxed at a lower tax-free threshold. You are entitled to a pro-rata tax-free threshold for the number of months you were an Australian resident.
Don’t forget, nonresidents don’t have to pay the Medicare levy, so you can claim an exemption for the number of days that you were a nonresident. Also, once you officially become an Australian resident, you will need to declare the worldwide income you receive from the time you become a resident.
E-Lodge makes doing taxes easy for residents and non-residents. Not only that, but most online tax sites don’t offer international bank transfer. With E-Lodge, you can even have your refund deposited into a foreign bank account!
Photo via paul bica on Flickr.