Temporary Resident Visa - Tax Australia
As an Australian tax resident everyone has to lodge an Australian Tax Return with the Australian Taxation Office (ATO) regardless of whether you are on a temporary residency visa or considered to be temporary resident for tax purposes to report your Australian source income and certain overseas income unless you meet the thresholds not to lodge.
The Australian tax year runs from 1st July to 30th June.
You will need to apply for a tax file number in order to lodge an Australian Tax Return.
If your income is below the tax-free threshold ($18,200 for 2022/2023) you will still be issued a tax return to complete by the ATO however, you may not need to lodge a tax return.
You can report your income by lodging a CU non lodgment form to the ATO advising them that your income is below the threshold but only if tax has not been withheld from employment income or any other source.
You are a temporary resident if:
- You hold a temporary visa granted under the Migration Act 1958
- You are not an Australian resident within the meaning of the Social Security Act 1991
- Your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.
Under the Social Security Act 1991 an ‘Australian resident’ is generally a person who resides in Australia and either an Australian citizen of holds a permanent resident visa.
Individuals who were in Australia before 26 February 2001 and held a protected special category visa holder are also considered to be Australian residents for the purposes of the Social Security Act 1981.
Determining Australian Tax Residency Status
Australian tax residents
If you are arriving in Australia to go live or work regardless of whether you arrive on a temporary residency visa such as a 457 now referred to a 482 visa or permanent visa for a period of time it is important that you obtain professional tax advice in relation to your Australian tax residency position and the impact this may have on your future reporting and ongoing tax implications.
There are a number of tests to best determine your residency position which are detailed below:
Resides Test
The primary test of tax residency is called the resides test. If you reside in Australia, you are considered an Australian resident for tax purposes and you do not need to apply any of the other residency tests.
Some of the factors that can be used to determine residency status include:
- physical presence
- intention and purpose
- family
- business or employment ties
- maintenance and location of assets
- social and living arrangements.
There Are Several Aspects of The Resides Test
- What does it mean to ‘reside‘ – “to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place”
- Entering Australia
- Behaviour while in Australia, what is your intention & purpose?
- Physical presence in Australia
- Nationality
Domicile Test
You are an Australian tax resident if your domicile (the place that is your permanent home) is in Australia, unless your permanent place of abode is outside of Australia.
A domicile is a place that is considered to be your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).
There are two steps to this test:
Determine your domicile
If not in Australia, the domicile test is not satisfied.
If in Australia, go to step two.
Determine your permanent place of abode
- If not in Australia, the domicile test is not satisfied.
- If in Australia, you are considered an Australian resident for income tax purposes.
183 Day Test is the Second Statutory Test
This test only applies to individuals arriving in Australia. You will be a tax resident of Australia under this test if you are physically present in Australia for more than half the income year, whether continuously or with breaks.
Under this test, you may be said to have a constructive residence in Australia unless it can be established that:
- your usual place of abode is outside Australia
- you have no intention to take up residence here.
In this test, your usual place of abode must be outside of Australia. This is different to the first test (domicile) that requires us to be satisfied that your permanent place of abode is outside Australia.
Commonwealth Superannuation Test is the Third Statutory Test
If you as a Australian government employee, you are considered a resident of Australia for tax purposes, even if you live outside the country. This applies to employees who contribute to certain public sector superannuation schemes.
Under the Commonwealth superannuation test, you are an Australian tax resident if you are a contributing member of:
- the Public Sector Superannuation Scheme (PSS), or
- the Commonwealth Superannuation Scheme (CSS).
This test does not apply if you are a member of the Public Sector Superannuation Accumulation Plan (PSSAP).
If you are an Australian resident under either of these this tests, your spouse and any children under 16 years old are also Australian residents for tax purposes.
Tax rates for foreign residents
Tax-Free Threshold
Tax obligations for temporary visa holders & temporary residents for tax purposes.
Tax obligations for temporary visa holders & temporary residents
If you are the holder of a temporary resident visa and you satisfy the above conditions as a holder of a temporary resident visa and considered to be an Australian resident for tax purposes and meet the requirements to be a temporary resident, the temporary resident rules mean:
- Most of your foreign income is not taxed in Australia except income you earn from employment or services you perform overseas while you are a temporary resident. This employment or services income may be subject to income tax and you would still declare it in your tax return in the income year you earn it. If you paid tax in a foreign country, you may be entitled to claim a foreign income tax offset when you lodge and declare that income in your Australian tax return.
- If a capital gains tax event occurs while you are a temporary resident, you are not liable to capital gains tax (nor treated as having made a capital loss) unless the asset is ‘taxable Australian property’.
- Special rules apply to capital gains on shares and rights acquired under employee share schemes
- Interest you pay to foreign residents (for example, foreign lenders) is not subject to withholding tax.
- Controlled foreign company record keeping obligations are partly removed.
Tax exemptions for temporary residents
If you have a temporary visa, and neither you or your spouse is an Australian resident within the meaning of the Social Security Act 1991 (that is, not an Australian citizen or permanent resident), you are a temporary resident. This means you are only taxed on :
- income you derived in Australia
- any income you earn from employment or services performed overseas while you are a temporary resident of Australia.
Other foreign income and capital gains are declared as target foreign income but not taxed..
If you are considered to be a foreign resident for tax purposes you must declare on your tax return any income earned in Australia, including:
- employment income (this may include employment income for work performed in Australia for an overseas entity)
- rental income
- Australian pensions and annuities
- capital gains on Australian assets.
As a foreign resident:
- you have no tax-free threshold
- you do not pay the Medicare levy – you can claim an exemption from paying the Medicare levy for the number of days in the income year you are a foreign resident
- you do not declare any Australian-sourced interest, dividends or royalties you derive while you are a foreign resident, provided withholding tax has already been withheld
- the capital gain on your Australian home may need to be included if you are a foreign resident at the time you sign the contract of sale.
Medicare levy
You may qualify for an exemption from paying the Medicare levy if you were in any of the following three exemption categories at any time in the financial year:
meet certain medical requirements
are a foreign resident
are not entitled to Medicare benefits.
If you have any dependants, you need to consider theirs and your own circumstances when determining if you qualify for an exemption.
If you qualify for an exemption, you claim the exemption through your tax return.
If you are claiming an exemption because you were not entitled to Medicare benefits, you will also need to apply for a Medicare Entitlement StatementExternal Link (MES) from Services Australia. It can take up to eight weeks for you to receive your MES from Services Australia. The MES tells you the period during a financial year that you weren’t eligible for Medicare. Therefore, you need to apply for an MES as soon as possible so that you can lodge your tax return correctly and on time.
Medical exemption from Medicare levy
Find out if you claim an exemption from paying the Medicare levy based on a medical exemption
Foreign residents Medicare levy exemption
Find out if you claim an exemption from paying the Medicare levy based on being a foreign resident
Not entitled to Medicare benefits
Find out if you claim an exemption from paying the Medicare levy based on not being entitled to Medicare benefits
Dependants for Medicare levy exemption
Find out what a dependant means for the Medicare levy exemption
Departing Australia Superannuation Payment (DASP) – when leaving
If you worked and earned superannuation while visiting Australia on a temporary visa, you can apply to have this superannuation paid to you as a departing Australia superannuation payment (DASP) after you leave.
Generally, you can claim a departing Australia superannuation payment (DASP) if the following apply:
- you accumulated superannuation while working in Australia on a temporary resident visa issued under the Migration Act 1958 (excluding Subclasses 405 and 410)
- your visa has ceased to be in effect (for example, it has expired or been cancelled)
- you have left Australia and you do not hold any other active Australian visa
- you are not an Australian or New Zealand citizen, or a permanent resid
Note: If you are a New Zealand citizen leaving Australia permanently, you may be able to transfer your super to New Zealand under the Trans-Tasman retirement savings portability scheme for individuals.
Your DASP is taxed before you receive it. The DASP tax rate is different for working holiday makers (WHM). If you hold (or held) a 417 (Working Holiday) or 462 (Work and Holiday) visa you are classified as a WHM.
If it has been six months or more since you left Australia, your visa has ceased to be in effect. If you have not claimed DASP, your superannuation fund will transfer your superannuation money to the ATO as unclaimed superannuation..
Part year residency
It is possible to be a tax resident in more than one country, in which case, individuals will need to turn to any double-tax treaty for a tie-breaker rule to determine treaty residency.
Proposed ‘bright lines test’
As part of the 2021–22 Federal Budget, the Government announced that it will replace the individual tax residency rules with a new “bright lines” test, based on the Board of Taxation’s recommendations.
This measure is proposed to have effect from the first income year after the date of Royal Assent of the legislation.
This has not yet become legislation and therefore it is a note only for consideration.
Temporary residents may still be considered to be resident in Australia for tax purposes
No, WHV holders whose employers are registered as a WHM employer will withhold tax are a rate of 15% of the first $45,000, 32.5% up to $120,000, 37% up to $180,000 and 45% for $180,000 and over.
This will depend on whether you are eligible for Medicare benefits or considered to be a foreign resident. If you are then you either may a claim for the exemption on your tax return or you obtain a Medicare Entitlement Statement.
Backpacker tax is 15% up to $45,000, 32.5% up to $120,000, 37% up to $180,000 and 45% for $180,000 and over.
You can apply via the ATO website.
The filing deadline will vary depending on whether you are lodging the tax return yourself of via a registered tax agent:
● Lodging yourself the filing deadline is 31 October.
● Lodging via a tax agent the filing deadline is May the following year if registered with a tax agent and on their client ATO portal by 31 October and also if all your prior year tax returns have been lodged on time.
The remittance basis is an alternative tax treatment available to individuals who are resident of the UK but not domiciled in the UK and have foreign income and gains.
Professional advice on temporary resident tax matters
We at GM Tax provide fixed fee quotes for advisory work and tax returns.
If you are living in Australia and would like a fixed fee proposal from a firm of UK & Australian tax advisors that understands the issues affecting individuals residing here including the different reporting requirements for temporary, permanent and working holiday visa holders please complete our online enquiry via our contact us button or by calling a GM Tax office closest to you.
GM Tax also offers the following UK tax services:
GM Tax also offers the following UK tax services:
- Tax planning advice and guidance with regards to your residency status in the UK, eligibility for split year treatment and also domicile status in the context of Inheritance Tax (IHT) planning.
- Preparation of UK tax returns, with all returns submitted to HM Revenue electronically where possible.
- Advice on the tax position where a property in the UK is being let while a taxpayer is living overseas.
- Assistance to ensure UK source income of those who are non-residents of the UK is properly taxed and is not taxed twice, or double taxed.
- This last point is particularly relevant to those who have UK source income or capital gains which may also be subject to tax in the country in which the taxpayer is now resident.