What Is Tax Residency in Australia?
Tax residency is the status used under Australian tax law to help determine how your income is taxed and what you may need to report in your Australian tax return.
You can be an Australian resident for tax purposes even if you are not an Australian citizen or permanent resident. Likewise, holding an Australian visa does not automatically make you an Australian resident for tax purposes.
Immigration residency and tax residency are different concepts. Your student visa, temporary visa, permanent residency or citizenship may be relevant background, but your tax residency is determined under Australian tax law.
Why Tax Residency Matters for Nepali Students and Workers
- whether the Australian resident tax-free threshold may apply
- which income tax rates apply
- whether foreign income may need to be declared
- how part-year residency is treated
- certain capital gains tax rules
- how much tax your employer withholds
What Are the Four Australian Tax Residency Tests?
The ATO identifies four statutory residency tests. You do not need to satisfy all four; satisfying one applicable test can be enough to be an Australian resident for tax purposes.
Resides Test
Looks at whether you reside in Australia according to the ordinary meaning of “reside”, based on your overall circumstances.
Domicile Test
Can apply where your domicile is in Australia, subject to rules about whether your permanent place of abode is outside Australia.
183-Day Test
Considers whether you are present in Australia for 183 days or more in the income year, subject to specific exceptions.
Commonwealth Super Test
A specialised test generally relevant to certain Australian Government employees and eligible family members.
What Does the Resides Test Look At?
The resides test looks at whether, in an ordinary sense, you are living or residing in Australia. Your overall circumstances matter.
Factors can include where you live, your routine, family and social connections, employment, assets and the nature of your stay.
Does Staying in Australia for Six Months Automatically Make You a Tax Resident?
No. Time spent in Australia can be important, but residency is not simply a six-month counting exercise.
The ATO notes that people who have been in Australia continuously for six months or more may often be residents where, for most of that time, they worked in one job and lived at the same place. Your full circumstances still matter.
Statements such as “six months means resident” or “student visa means foreign resident” can be misleading. Apply the relevant residency tests to your actual circumstances.
Are Nepali International Students Australian Residents for Tax Purposes?
Many overseas students who come to Australia to study a course lasting more than six months may be Australian residents for tax purposes, depending on their circumstances.
The ATO includes overseas students enrolled in courses longer than six months among common situations where a person is generally an Australian resident for tax purposes.
Nepali Student Studying and Working in Australia
A Nepali student comes to Australia for a multi-year university course, rents accommodation, works part-time and establishes normal day-to-day living arrangements in Australia. These circumstances may support Australian tax residency, but the relevant residency tests should still be applied rather than relying only on the student visa.
Can a Temporary Visa Holder Be an Australian Resident for Tax Purposes?
Yes. A temporary visa holder can potentially be an Australian resident for tax purposes. Tax residency is separate from immigration status.
There is also a separate concept of a “temporary resident” under tax law, which can change the treatment of some foreign income and capital gains.
Australian Resident vs Foreign Resident for Tax Purposes
| Issue | Australian Resident | Foreign Resident |
|---|---|---|
| Tax-free threshold | Generally eligible, subject to part-year rules where relevant. | Generally no resident tax-free threshold. |
| Australian income | Generally included where taxable. | Australian-sourced taxable income generally needs to be considered. |
| Foreign income | Residents generally declare worldwide income, subject to special rules such as temporary resident rules. | Foreign income is generally not declared merely because you have Australian tax obligations. |
| Tax rates | Resident tax rates generally apply. | Foreign resident tax rates generally apply. |
| CGT treatment | Broader Australian CGT rules can apply. | Generally focused on taxable Australian property, subject to applicable rules. |
Do Australian Tax Residents Get the Tax-Free Threshold?
Australian residents for tax purposes are generally entitled to the resident tax-free threshold. The full-year threshold is generally $18,200.
If you become or stop being an Australian resident during the income year, a part-year tax-free threshold may apply instead of the full amount.
Do Foreign Residents Get the Tax-Free Threshold?
Foreign residents for Australian tax purposes are generally not entitled to the Australian resident tax-free threshold.
What Is Part-Year Tax Residency?
Part-year residency can arise when you become or cease to be an Australian resident for tax purposes during an income year.
In that situation, a reduced part-year tax-free threshold applies and resident tax rates generally apply to your income while you are a resident.
If your residency status changed during the financial year, your tax return may need the date your residency changed and the number of months you were an Australian resident for tax purposes.
Do Australian Tax Residents Need to Declare Foreign Income?
Australian residents for tax purposes generally declare worldwide income, unless a specific exemption or special rule applies.
This can include overseas salary or wages, foreign bank interest, dividends, rental income, business income and other foreign income.
Temporary resident rules can change how some foreign income is treated, so temporary visa holders should not assume that all foreign income is automatically taxable or automatically exempt.
What If You Paid Tax in Nepal on Foreign Income?
If Australian tax rules require the foreign income to be declared and you already paid foreign tax, you may be entitled to a foreign income tax offset, subject to eligibility rules.
Do Foreign Residents Declare Overseas Income in Australia?
Foreign residents generally do not declare foreign-sourced income in Australia merely because they have some Australian tax obligations. Australian-sourced taxable income may still need to be reported.
Does Tax Residency Affect Your TFN Declaration?
Yes. Residency status can affect how much tax your employer withholds. If your residency changes, you may need to update your employer with a new withholding declaration.
What If Your Employer Treated You as a Foreign Resident by Mistake?
If you are an Australian resident for tax purposes but your employer has been withholding as though you are a foreign resident, you can generally update the relevant withholding information with your employer.
Any excess tax withheld is taken into account when your tax return is assessed.
What Happens When You Leave Australia?
Leaving Australia does not automatically mean you immediately become a foreign resident for tax purposes. Your ongoing ties, living arrangements, intentions and other circumstances can affect the answer.
What Happens When You First Arrive in Australia?
Your Australian tax residency does not necessarily begin simply because you arrive in Australia. The relevant tests and your circumstances determine when residency starts.
Tax Residency and Nepali Students With Part-Time Jobs
A Nepali student may work in hospitality, cleaning, retail, aged care, delivery or another industry while studying. The amount of income earned does not by itself determine tax residency.
Tax Residency and Nepali Workers on Temporary Visas
Temporary visa holders should avoid assuming that “temporary visa” means “foreign resident for tax purposes”. Depending on your circumstances, you may still be an Australian resident for tax purposes.
Common Tax Residency Mistakes
- assuming a student visa automatically means foreign resident
- assuming permanent residency automatically decides tax residency
- using only the 183-day count without considering the full rules
- claiming the tax-free threshold without considering residency
- failing to review residency after arriving in or leaving Australia
- forgetting foreign income after becoming an Australian tax resident
- confusing temporary resident tax rules with foreign resident status
What Should You Review Before Lodging?
Consider when you arrived, left or changed your long-term living arrangements.
Review where you lived, how stable the accommodation was and your ongoing connections.
Consider the length and nature of your course, employment and time in Australia.
Identify income earned in Australia and overseas and when it was earned.
Check that your residency and tax-free threshold selections reflect your circumstances.
Can Tax Residency Change From One Year to Another?
Yes. Tax residency depends on your circumstances, which can change over time. Moving permanently, returning to Nepal, extending your stay or changing your living arrangements can affect your position.
How Hamro Accountant Can Help
Hamro Accountant can help Nepali students, workers, new migrants and temporary visa holders understand how Australian tax residency may affect their tax return.
We can also assist with tax-free threshold questions, multiple jobs, foreign income, part-year residency, TFN and ABN income, amendments and other Australian tax matters based on your circumstances.