Are You an Australian Resident for Tax? The Tests Explained
Whether you are an Australian resident for tax purposes changes almost everything about your return: which income is taxed, which rates apply, and whether you get the tax-free threshold. It is also a different question from your visa or citizenship, which is where much of the confusion starts.
Key takeaways
- Tax residency is decided by tax law tests, not by your visa, citizenship or migration status.
- The main test asks whether you "reside" in Australia in the ordinary sense; if you don't, three further statutory tests can still make you a resident.
- Australian residents are generally taxed on worldwide income; foreign residents are generally taxed only on Australian-sourced income, at different rates and without the tax-free threshold.
- Temporary residents are generally not taxed on most foreign income, even though they may be residents for tax purposes.
- Working holiday makers are taxed under a separate set of rates on their working holiday income, and their employers must be registered with the ATO to withhold at those rates.
Why tax residency is its own question
You can be an Australian citizen and a foreign resident for tax. You can hold a temporary visa and be an Australian resident for tax. The tax tests look at facts about your life: where you live, your intentions, your connections, and how long you are here. The ATO explains the tests in its residency guidance, which you can find from ato.gov.au/individuals-and-families.
Residency is worked out for each income year, and it can change part-way through a year if you arrive or leave. People in that position may be a resident for part of the year, which affects things like the tax-free threshold.
The four residency tests
1. The resides test. This is the primary test. It asks whether you reside in Australia according to the ordinary meaning of the word. Factors include your physical presence, the purpose and intention of your stay, family and business ties, where your belongings are, and how settled your living arrangements are. If you satisfy this test, you are a resident and the other tests aren't needed.
2. The domicile test. If your domicile, broadly your permanent legal home, is Australia, you are a resident unless the Commissioner is satisfied your permanent place of abode is outside Australia. This test mostly matters for Australians who move overseas.
3. The 183-day test. If you are actually present in Australia for more than half the income year, you may be a resident, unless the Commissioner is satisfied your usual place of abode is overseas and you don't intend to take up residence here.
4. The Commonwealth superannuation fund test. This applies to certain Australian Government employees working overseas who are members of particular Commonwealth super schemes, and their spouses and children under a certain age.
Proposals to modernise these tests have been discussed for some years. Until any change becomes law, the existing tests apply; check the ATO for the current position.
Tax residency follows your life, not your passport. Two people on the same visa can have different residency outcomes because their circumstances differ.
What changes depending on your status
| Area | Australian resident | Foreign resident | Working holiday maker |
|---|---|---|---|
| Income taxed in Australia | Worldwide income (temporary residents: mostly Australian income) | Australian-sourced income | Australian-sourced income, with working holiday income taxed under separate rates |
| Tax-free threshold | Available (may be pro-rated in a part year) | Not available | Not available on working holiday income |
| Medicare levy | Generally payable, with exemptions and reductions | Generally not payable; an exemption may need to be claimed | Depends on circumstances; check the ATO |
| Rate schedule | Resident rates | Foreign resident rates | Working holiday maker rates |
Current rates for each schedule are published on the ATO's tax rates pages at ato.gov.au/tax-rates-and-codes.
Temporary residents
If you hold a temporary visa and neither you nor your spouse is an Australian resident within the meaning of the social security law, you are likely to be a temporary resident for tax purposes. Temporary residents who are tax residents are generally not taxed on most foreign income and some foreign capital gains, though employment income earned while in Australia is taxed. They also have some restrictions, such as on the CGT discount. Once you become a permanent resident, these concessions generally end.
Working holiday makers
Working holiday makers are people on the working holiday visa subclasses, 417 and 462. Their working holiday income is taxed under a separate rate schedule, regardless of whether they are residents for tax, and the tax-free threshold doesn't apply to it. Employers who hire working holiday makers must register with the ATO to withhold at the working holiday maker rates; an unregistered employer must withhold at the foreign resident rates.
When a working holiday maker leaves Australia permanently, super their employer paid can generally be claimed as a departing Australia superannuation payment. It is taxed at rates specific to that payment, and the claim is made online after leaving and after the visa has ceased. The ATO and Department of Home Affairs websites explain the conditions.
Three profiles, three likely outcomes
The international student. A student who comes to Australia for a multi-year degree, rents a place, studies full time and works part time will often be a resident under the resides test, because their stay has a settled routine and a long-term purpose. As a temporary visa holder they may also be a temporary resident, so their foreign income is generally not taxed here.
The backpacker. A traveller on a working holiday visa who moves from town to town doing short-term farm and hospitality work is taxed on their working holiday income under the working holiday maker rates, whatever the outcome of the residency tests for other purposes.
The expat. An Australian who takes a long overseas posting, rents out their home, moves their family and sets up a permanent home abroad may stop being a resident. One who leaves for a short contract, keeps their home available and plans to return may remain a resident and be taxed here on their foreign salary, subject to any treaty and foreign tax offset.
These are illustrations, not rulings. Small differences in facts can change the result, which is why the ATO looks at the whole picture.
Leaving or arriving part-way through a year
People who move to or from Australia should think about residency before the move, not at tax time. Questions to work through:
- Will you reside here in the ordinary sense, or are you visiting?
- If leaving, will you set up a permanent home overseas, or keep your Australian home available?
- Do you have foreign income or assets that would be taxable here as a resident?
- Does a tax treaty between Australia and the other country affect the outcome?
- What records will show your dates of arrival, departure and living arrangements?
Leaving Australia can also trigger a CGT event for some assets when you stop being a resident. That is a strong reason to get advice before departure.
Frequently asked questions
If I'm in Australia for more than half the year, am I automatically a resident?
Not automatically. Under the 183-day test you may be a resident, but not if the Commissioner is satisfied your usual place of abode is overseas and you don't intend to live here. Most people's residency is settled by the resides test anyway.
Can I be a tax resident of two countries?
Yes, it is possible under each country's domestic law. Tax treaties often include tie-breaker rules to decide which country has taxing rights in that situation.
Does residency affect my employer's withholding?
Yes. Your TFN declaration asks about residency, and employers withhold at different rates for residents, foreign residents and working holiday makers. If your status changes, update your declaration.
Verdict: Don't assume your visa answers the residency question. Work through the resides test first, then the statutory tests, and keep records of your dates and living arrangements. Most long-term residents and short-term visitors will find their answer quickly in the ATO's guidance. When to see a registered tax agent: if you are moving to or leaving Australia, have foreign income or assets, are a temporary resident becoming permanent, or your circumstances sit near the boundaries of the tests.