One of the very first questions you are asked on your tax return is:
“Are you an Australian resident?”
It may seem an unusual or unnecessary question, but working out your tax residency is important to the ATO as they want to get this one cleared up early, it makes a big difference to everything else that follows.
Australian residents are generally taxed on their worldwide income from all sources. Temporary residents of Australia and foreign residents are generally taxed only on their Australian-sourced income, such as money they earn working in Australia.
To understand your tax situation you first need to work out if you are an Australian or foreign resident for tax purposes. This may be different to your residency status for other purposes – for example, you could be an Australian resident for tax purposes even if you’re not an Australian citizen or permanent resident. The ATO views residency in an entirely different way to other Australian Government agencies, which deal with things like immigration, visas and citizenship. Whether you’re defined as a resident or non-resident has no impact on your passport or even your status as a permanent resident, and vice versa.
Common Situations
If you: |
you are generally: |
| leave Australia temporarily and do not set up a permanent home in another country | an Australian resident for tax purposes |
| are an overseas student enrolled in a course that is more than six months long at an Australian institution | an Australian resident for tax purposes |
| are visiting Australia for more than six months and for most of that time you live at the same place, and you either have or establish ties in the local community | an Australian resident for tax purposes |
| are visiting Australia for more than six months, and for most of that time you are travelling and working in various locations around Australia | a foreign resident for tax purposes |
| are either holidaying in Australia or visiting for less than six months | a foreign resident for tax purposes |
| migrate to Australia and intend to reside here permanently | an Australian resident for tax purposes |
| leave Australia permanently | treated as a foreign resident for tax purposes from the date of your departure |
The reason the ATO gives such weight to residency is that a person’s status as a resident or not can make quite a difference for tax purposes, as the law treats residents and non-residents differently.
If you require any assistance in this area, please call us at Optima Partners and speak to one of our accountants.
LUMYA SILWIMBA
ACCOUNTANT – OPTIMA PARTNERS
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