The income you pay tax on depends on your residency for tax purposes. Australian residents must declare their worldwide income.
Foreign residents must declare either:
- all Australian-sourced income
- worldwide income if you have certain study and training support loans.
To determine whether you are an Australian resident or foreign resident for tax purposes, see Work out your tax residency.
As an Australian resident for tax purposes:
- you must declare all income you earned anywhere in the world on your Australian tax return (your worldwide income)
- you’re entitled to the tax-free threshold – this means there is no tax on your income up to a certain amount
- you may have to pay the Medicare levy.
Australian residents (for tax purposes) with a tax file number generally pay a lower rate of tax than foreign residents.
If you are an Australian resident for tax purposes and you:
- have a temporary resident visa
- most of your foreign income isn’t taxed in Australia
- we tax your income from actual work you do overseas while you are a temporary Australian resident (see Exempt foreign employment income)
- receive foreign income
- income may be taxed in both Australia and the country from where you received it
- tax paid in another country on your foreign income may entitle you to an Australian foreign income tax offset
- receive income from a country that Australia has a tax treaty with
- you can ask the tax authorities in that country to reduce their withholding tax or to exempt you from paying tax in that country
- done by supplying a tax relief form or a certificate of residency or status.
If you are a foreign resident working in Australia:
- you declare on your Australian tax return any Australian-sourced income you earned, including
- employment income
- rental income
- Australian pensions and annuities, unless an exemption is available under Australian tax law or a tax treaty
- capital gains on Australian assets
- you aren’t entitled to the tax-free threshold, so you will pay tax on every dollar of income you earn in Australia
- you don’t pay the Medicare levy (and you aren’t entitled to Medicare health benefits) in your Australian tax return, 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 don’t declare any Australian-sourced interest, dividends or royalties you derive while you are a foreign resident, provided the Australian financial institution or company that pays you has already withheld tax (they would do this automatically if you advised them that you were a foreign resident).
Payments for the following are subject to foreign resident withholding tax:
- promoting or organising casino gaming junket arrangements
- entertainment and sports activities
- contracts for the construction, installation and upgrading of buildings, plant and fixtures and for associated activities.
Your payer will withhold this tax. You report the payments in your Australian tax return and claim the withheld amounts as a credit against the tax assessed.
- Investment income and royalties paid to foreign residents
- Foreign resident PAYG withholding – for individuals
Study and training support loan obligations
As a part year or full year foreign resident (including Australians who leave Australia with the intention to live and work overseas for 183 days or more in any 12 month period), you must:
- update your contact details
- submit an overseas travel notification within seven days of leaving Australia
- declare your worldwide income or lodge a non-lodgment advice.
This applies if you have one of the following study and training support loan loans:
- Higher Education Loan Program (HELP – formerly known as HECS)
- VET Student Loan (VSL)
- Trade Support Loan (TSL).
If your residency status changes during the year
If your residency status has changed from foreign resident to Australian resident for tax purposes during the income year, answer ‘Yes’ to the question on your tax return ‘Are you an Australian resident?’. This ensures you will be taxed at Australian resident rates for the tax year. Because you have been a foreign resident for part of the year, your tax-free threshold will be reduced.
You must include in your Australian tax return any foreign-sourced income you received while you were an Australian resident for tax purposes. Any Australian-sourced interest, dividends and royalties derived when you were not an Australian resident for tax purposes are subject to the withholding tax provisions and should not be included in your tax return – that is, your payer should withhold tax from those amounts at the time of making the payments to you.