Australian Tax Returns for Non-Residents
Note :The information in the articles below is of a general nature only and may not be relevant to your specific individual circumstances. You may need to engage ezytaxback.com Pty Ltd to provide you with specific advice to suit your specific circumstances.
Taxes in Australia for non-residents can be daunting and confusing as the laws aren’t as clear as many other countries. To keep it simple, money that is earnt by an individual residing in Australia must be declared within an Australian Tax Return whether you are an Australian Resident, are visiting Australia, or are a foreign resident with investments within Australia.
A tax return is required to be lodged if any of the following circumstances apply to you:
- You are a non-resident with $1 or more of Australian Income
- You are an Australian Resident or Temporary Resident with $18,200 or more Taxable Income
- You have PAYG Tax Withheld from your income
The majority of employees or individuals fall into at least one or more of these circumstances and will be required to lodge an Australian Tax Return.
Determining your Residency Status
The first step to completing your non-resident tax return in Australia is to determine your residency status for tax purposes. Your Residency Status for tax purposes is not your migration status or citizenship, nor is it related to this. Both residents and non-residents who earn income in Australia must lodge a Tax Return.
The Australian Taxation Office has its own set of rules and tests which determines an individual’s residency status for tax purposes. This step is important as your residency status within Australia determines the rate of tax you are required to pay on your Australian Income and if you must pay tax on your foreign income as well. Australian non-resident tax rates are higher than standard resident rates.
Australian Tax Law specifies four tests that can be used to determine if an individual is an Australian Resident for Tax Purposes or not. An individual must satisfy at least one test to be considered a resident for Tax Purposes.
1.) Resides Test
The first and most common test is called the Resides Test. This test basically means if you reside in Australia or not. If you do, then you are considered to be a resident. The word ‘resides’ does not have a special definition as per Australian Income Tax Legislation, it is simply the normal definition.
‘…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 other three tests are also available if you do not satisfy the Resides Test. These Statutory tests can also assist you to work out your tax residency if you’re unsure if you entirely meet the Resides Test or not.
2.) The Domicile Test
A domicile is widely defined as the country in which an individual has a permanent home that they live in, or have a significant connection with. If an individual’s Domicile is in Australia, they are generally considered to be a resident for tax purposes, or alternatively, a non-resident if their domicile is elsewhere.
3.) The 183 Day Test
This test is self-explanatory in that if you are residing in Australia for 183 days (half the income year) or more, continuously or with breaks, you are considered to be a resident. The only exception to this however, is if it can be proved you have a domicile elsewhere and there is no intent of taking up residency in Australia.
4.) The Superannuation Test
You are considered to be an Australian Resident for Tax Purposes if you are:
- A member of the superannuation scheme established under the Superannuation Act 1990, or
- An ‘eligible employee’ for the purposes of the Superannuation Act 1976
For further information and specific examples refer to: https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/
Tax Effects due to your Residency
Now that you have worked out your residency status, you are now able to understand the tax consequences of your situation and if Australian non-resident tax will apply to you.
If you are an Australian Resident for tax purposes you are required to include all income that you have earned both in Australia and other countries. As income that is earned in foreign countries is commonly taxed in both Australia and the source country, this results in double taxation. Thanks to tax treaties and agreements between Australia and 40 other countries, foreign income is subject to credits and exemptions in the form of Tax Offsets.
Tax Offsets are different to Tax Deductions in that they are applied directly to your taxable income which reduces the amount of tax payable on your income. Every dollar of a tax offset reduces the tax payable on your income by one dollar. Therefore, you are receiving the full offset amount as a benefit instead of a percentage of the amount depending on your tax rate.
If you are an Australian Resident for Tax Purposes on a temporary visa you are also considered to be a temporary resident. Non-residents that are temporary residents do not have to declare all income earned worldwide, and only should declare all income earned within Australia and any income earned from employment overseas whilst you were considered an Australian resident for tax purposes (these of course will be shorter periods of time).
Australian Residents along with temporary residents are taxed at normal Australian individual tax rates and are also entitled to the tax-free threshold. The Tax-Free Threshold allows an individual to earn up to $18,200 without being taxed. Individuals who earn over $18,200 are only taxed on amounts greater than $18,200.
Non-Residents must also lodge a tax return if they earn income whilst in Australia. Non-Residents however only have to include income earned in Australia and do not have to declare foreign income, including income from employment in other countries. Australian non-resident tax rates are higher rate than residents and are not entitled to the Tax-Free Threshold. This means that Tax in Australia for non-residents is charged from the first dollar of income they earn.
Working Holiday Makers
Working Holiday Makers were traditionally treated as Temporary Residents of Australia provided the length of their stay and employment activities allowed them to pass the residency tests outlined earlier. However, as of 1 January 2017 the ATO introduced new legislation. From this date, Working Holiday Makers, those being on 417 and 462 visas, are taxed as non-residents of Australia. If their employers have registered with the ATO they can withhold tax on their wages at 15% and this is then reflected in the individual’s payment summary and their Australian non-resident Tax Return.
Completing your Tax Return
When it comes to claiming tax back with Ezytaxback.com, Australian Tax Returns for non-residents are just as simple to assemble than they’re for Australian residents. If you are completing an online tax return, when entering your personal details, you will be asked if you are an Australian Resident in which you will answer Yes or No based on the tests outlined earlier. You will then enter your income and deductions that you have earned. If you are required to include foreign income there is a special ‘Foreign Income’ section that is clearly outlined where you can enter these details. Always make sure that all foreign income is declared in this Foreign Income Section separate to your income that is earned in Australia. This will ensure you receive the appropriate tax exemptions and credits on your foreign income and that you are not taxed incorrectly.
If you have investments overseas, you must include the income received from these investments in your tax return if you are an Australian Resident. As most investments offshore will be in foreign currency, when including it in your Australian Tax Return you will need to convert this to Australian Dollars. A general rule is that it is converted to Australian Dollars at the exchange rate that was applicable on the payment date from that investment.
Lastly, always remember foreign income counts for all income earned offshore this includes the following:
- Foreign pensions and annuities
- Foreign employment income
- Foreign investment income
- Interest in overseas bank accounts
- Interests in foreign entities
- Rental income from overseas property
- Capital gains from the sale of overseas investments
- Foreign business income
- Capital gains on overseas assets
If is an offence in Australia not to declare all income earned, therefore if you do not declare income whether it be Australian or foreign, you will be contacted in future and asked to declare this information along with penalties for not doing so.