Tax

Tax Residency

Are you an Australian resident for tax purposes? You don't need to be an Australian citizen or a permanent resident to be considered a tax resident. We advise on tax residency and its implications for inbound and outbound individuals.

Under the Australian tax law, residents and non-residents are treated differently. Generally, tax residents are taxed on their worldwide income, while non-residents are taxed on their income earned in Australia. Different marginal tax rates are applicable to non-residents. CGT rules also differ significantly depending on residency.

The difference between resident and non-resident can result in potentially severe financial consequences.

We advise all on tax residency matters, including ATO disputes, complex international issues and corporate residency.

We assist with:

individual tax residency;
corporate tax residency;
disputes with the Australian Taxation Office (ATO);
applying double tax agreements between Australia and other jurisdictions;
the controlled foreign company (CFC) rules;
the transferor trust rules and distributions from foreign trusts;
inbound tax planning; and
outbound tax planning.

Approach

Our usual approach is to:

provide you with a clear and transparent fee quote;
discuss your requirements, goals and desired outcomes;
work collaboratively with other professional advisors;
deliver our work to you in accordance with your wishes; and
regularly update you and your professional advisors during the process.

Fill in the form and someone from our team will be in contact shortly.

When do I become a tax resident of Australia?

Tax residency is different from residency for immigration purposes, and ultimately depends on individual circumstances.

Currently, there are four tests that can be used to determine one’s tax residency. On 11 May 2021, the then Government announced it intends to reform these rules.

Among the myriad of factors to consider under the tests, the following are some examples:

your physical location during the income year, and number of days spent in Australia;
your intention and purpose of staying in Australia;
your business and family ties, if any, within Australia;
your visa and Citizenship status;
the location and maintenance of your assets, including place of abode in Australia and motor vehicles; and
your daily habits and way of life, including social life and living arrangements.

We frequently assist clients with determining their residency and the relevant tax obligations.

Do need I declare my worldwide income in my tax returns?

As an Australian tax resident, your assessable income includes income from all sources (worldwide income). Subject to any applicable Double Tax Agreement, this includes any income earnt overseas, including:

income from employment and personal services;
capital gains from assets that you own overseas;
income from other assets and investments;
income from business activities; and
pensions.

If you have paid or will pay tax on that income in another jurisdiction, you may be eligible for a foreign income tax offset in Australia for tax paid in another jurisdiction (even if you have paid or will pay tax on that income in another jurisdiction).

In addition to understanding your obligations, determining whether you are a tax resident will also help you assess whether you are eligible for any concessions or whether you will be subject to additional surcharge.

When is a company an Australian tax resident?

Section 6(1)(b) of the Income tax Assessment Act 1936 contains the definition of a resident company. The section states that a company will be a tax resident of Australia if:

it is incorporated in Australia;
it is not incorporated in Australia and carries on business in Australia; or
it is not incorporated in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

Due to how this test has been interpreted, foreign companies that have their central management and control in Australia may be a resident of Australia. On 6 October 2020, the then Government announced that technical amendments would be made to the corporate residency test to limit the situations in which foreign companies would be residents. The proposed amendments are intended to have effect from the first income year after royal assent, with the option for taxpayers to apply the new legislation from 15 March 2017. As of 1 September 2022, legislation has not been introduced.

Can I claim the main residence CGT exemption if I am a non-resident?

From 1 July 2020, non-residents cannot claim the main residence CGT exemption (other than in limited circumstances). This exclusion is based on the individual’s tax residency as at the time of the CGT event. This means if an individual is a foreign resident at the time of the sale, they are not eligible for the main residence CGT exemption, even if they were tax residents previously. However, there is a limited exception to this rule. Under the ‘life event’ exception, if you have been a foreign resident for six years or less, and have experienced one of the following, you may be eligible to claim the main residence CGT exemption: