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What’s the difference between Australian and foreign tax residents?

Whether someone is an Australian or foreign resident for tax purposes can make a substantial difference to the amount of tax they are liable to pay. How are different resident types classified and what’s the difference? 

The standards used by the Australian Taxation Office to determine tax residency are not the same as those used by the Department of Immigration and Border Protection, therefore, it’s important to understand the difference between Australian citizen and permanent resident.

Someone could be an Australian resident for tax purposes even if they are not an Australian citizen or permanent resident.

Australian tax residents will be taxed on worldwide income while non-tax residents will only be taxed on Australian-sourced income and Australia taxable property.

Foreign tax resident

A foreign resident (or ‘non-resident’) is usually someone who lives outside Australia during the year or spends fewer than 183 days in that tax year in Australia.

These residents:

  • Are only taxed on Australian-sourced income and Australian taxable property;
  • Have a tax rate of 47 per cent (including the temporary budget repair levy of 2 per cent); and
  • Pay no capital gains tax (CGT) on the disposal of shares in an Australian company unless the company owns Australian taxable property.

Australian tax resident

An individual will be an Australian tax resident if they reside in Australia or in Australia for over 183 days in the year of income.

Even though Australian tax residents will be taxed on worldwide income and the individual top marginal tax rate is relatively higher, there are still benefits of being tax residents, including:

  • Access to the 50 per cent CGT discount if the CGT asset is held for greater than 12 months;
  • Their main residence will be exempt from CGT upon sale (this would generally not apply to non-residents); and
  • There is no foreign stamp duty surcharge.

Temporary resident

Those who hold a temporary visa and do not have a permanent resident visa are considered to be temporary residents of Australia for tax purposes.

Temporary residents are exempt from Australian tax on certain foreign source income and capital gains as well as interest withholding tax and have certain concessions in relation to employee share schemes.

People on working holidays will be subject to a tax rate of 19 per cent from 1 January 2017 under current government proposal.

In certain circumstances, an individual may be exempt from paying the Medicare levy if they are a temporary resident and they are not from a country where Australia has a Reciprocal Health Care Agreement.

Australia has such agreements with New Zealand, the United Kingdom, the Republic of Ireland, Sweden, the Netherlands, Finland, Italy, Belgium, Malta, Slovenia and Norway.

Gloria Liang, senior tax consultant, HLB Mann Judd Melbourne

What’s the difference between Australian and foreign tax residents?
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