Understanding Tax Residency in Australia: What You Need to Know

When it comes to paying taxes in Australia, one of the most important factors the Australian Taxation Office (ATO) considers is your tax residency status. This concept is often misunderstood, as it is very different from your immigration or visa status. Tax residency determines how much tax you pay, whether your worldwide income is assessable, and if you’re entitled to benefits such as the tax-free threshold. Misunderstanding your residency status can result in unexpected tax bills or even double taxation.

This article will guide you through the ATO’s residency tests, explain the key differences between residents and non-residents, and highlight the practical steps you can take to determine your obligations.

What is Tax Residency?

Tax residency refers to your status for tax purposes, and it is separate from your immigration or citizenship status. You don’t need to be an Australian citizen or permanent resident to be considered a tax resident. Conversely, simply holding a visa doesn’t automatically make you one.

The ATO applies specific residency tests to decide whether you are treated as a resident for tax purposes. If you qualify, you will generally pay tax on your worldwide income. If you don’t, you will only be taxed on income sourced within Australia.

The Australian Tax Residency Tests

The ATO uses four main tests to determine tax residency. Passing any one of them may qualify you as an Australian resident for tax purposes:

1. Resides Test — Ordinary Concepts Test

The Resides Test is the primary method for determining tax residency in Australia. It assesses whether you "reside" in Australia under ordinary concepts, considering various factors that indicate your connection to the country. These factors include:

• Intention to Stay: Your purpose for being in Australia and your plans regarding the duration of your stay.

• Family and Business Ties: The location of your immediate family and your business or employment connections.

• Housing Arrangements: Where you live and the stability of your accommodation.

• Social and Economic Links: Your involvement in the community and economic activities within Australia.

If your living arrangements and intentions align with those of a resident, you are likely considered a tax resident under this test.

2. Domicile Test

The Domicile Test determines your tax residency based on your permanent home, or "domicile." You are considered an Australian resident for tax purposes if your domicile is in Australia, unless the ATO is satisfied that your permanent place of abode is outside Australia. A domicile is a place that is considered to be your permanent home by law, which could be:

• Domicile of Origin: The domicile you acquired at birth.

• Domicile of Choice: A domicile you acquire by establishing a permanent home in a new location.

• Domicile by Operation of Law: A domicile that is automatically assigned under the law.

If your domicile is in Australia and you do not have a permanent home outside the country, you are generally considered an Australian tax resident.

3. 183-Day Test

The 183-Day Test evaluates your physical presence in Australia. If you are present in Australia for more than 183 days in a financial year, you may be considered a resident for tax purposes, unless:

• Your usual place of abode is outside Australia; and

• You do not intend to take up residence in Australia.

This test is particularly relevant for individuals who are in Australia for an extended period but may not have established residency.

4. Superannuation Test

The Superannuation Test applies primarily to Australian government employees working overseas who are contributing members of specific superannuation schemes. Under this test, you are considered an Australian resident for tax purposes if you are a contributing member of either:

• Public Sector Superannuation Scheme (PSS)

• Commonwealth Superannuation Scheme (CSS)

This test does not apply if you are a member of the Public Sector Superannuation Accumulation Plan (PSSAP). Additionally, your spouse and children under 16 may also be considered Australian residents under this test.

Resident vs. Non-Resident: A Quick Comparison

Aspect	Residents	Non-Residents
Tax Rates	Progressive rates with AUD 18,200 tax-free threshold	Higher rates from the first dollar earned
Income Reporting	Must declare worldwide income	Only declare Australian-sourced income
Benefits	Eligible for tax offsets, Medicare levy concessions, etc.	Not eligible for most benefits

💡 Example:

• A resident earning AUD 60,000 pays tax on worldwide income but enjoys the tax-free threshold.

• A non-resident earning the same amount in Australia pays higher tax, as no threshold applies.

Common Scenarios

• Temporary visa holders: Students or working holidaymakers—status depends on duration and ties.

• Australians working abroad: May remain residents if their permanent home is still in Australia.

• Expats moving to Australia: Often become residents if the assignment is long-term.

Consequences of Getting It Wrong

🚨 Risks include:

• Double taxation (taxed both in Australia and overseas).

• ATO penalties for failing to declare worldwide income.

• Investment and retirement planning disruptions.

Practical Tips for Managing Tax Residency

 ✅ Plan ahead before moving in or out of Australia. ✅ Review ties like family, property, and financial accounts. ✅ Stay updated on ATO rules and double tax agreements. ✅ Seek advice: Professional tax accountants can clarify complex cases.

Conclusion

Understanding your tax residency status is crucial for staying compliant with Australian tax law and avoiding unexpected liabilities. Whether you are a student, an expat, or a frequent traveller, knowing how the ATO defines residency and seeking professional advice can save you from costly mistakes.

FAQs

Q: What happens if I live in Australia for less than 183 days? A: You may still be a resident if you meet the Resides or Domicile Test.

Q: Can I be a resident of two countries at once? A: Yes, but double tax agreements (DTAs) usually assign residency to one jurisdiction.

Q: How do DTAs affect residency? A: DTAs prevent double taxation by clarifying which country has taxing rights over specific income.

---

Alison’s Story

Born in Hong Kong an moved to Australia, I have been associated with real estate all my life. As the plane slowly landed on the runway of Melbourne Airport, my life and career also changed to another runway. I changed from a Hong Kong real estate agent to an Australian real estate agent, and successfully obtained the Australian lawyer qualification.

When I was working in a law firm, I was surrounded by highly educated professionals. Even though their wages are very well, and they are absolutely the elites in society, but their lives are full of hard labor, and it’s hard for them to get rich through buying properties.

So I spend all my time and effort on learning financial and real estate investment knowledge, hoping to achieve financial freedom as soon as possible, and let my parents who have worked hard for many years live a good life.

Now I will share with you the knowledge and experience of investing in Australian real estate, and embark on the road to financial freedom together.

Alison Australian real estate information platform

The original intention of Miss Alison to establish investwithalison.com is to provide neutral Australian real estate information through this platform and help investors establish the most suitable investment strategy.

👉Website: investwithalison.com

👉Email: hello@investwithalison.com

👉Linkedin: linkedin.com/in/alisontaoaustralia/

Book a Call