RESIDENCY VS NON-RESIDENCY FOR TAX PURPOSES
There is a common misunderstanding that residency for tax purposes is the same as residency for immigration purposes. It is possible for a person to be an Australian resident for tax purposes whilst being a non-resident for immigration purposes.
Generally, if you reside in Australia, you will be considered an Australia resident for tax purposes. As there is no definition of the word ‘reside’ in the tax legislation, the tax office relies on the ordinary definition of the term ‘reside’. The Shorter Oxford Dictionary defines ‘reside’ as:
“…to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place…’[1]
Some of the matters that the tax office will take into account when determining if a person is a resident for tax purposes or not are as follows:
Individuals Coming to Australia
- Intention or purpose of presence
- Family and business/employment ties
- Maintenance and location of assets
- Social and living arrangements
In particular, if an inbound individual has been in Australia for more than half the tax year (183 days), they will generally be declared as an Australian resident.
Individuals Leaving Australia
- Intended and actual length of stay overseas
- Any intention either to return to Australia at some definite point in time or to travel to another country
- Existence of an established home overseas
- Abandonment of any residence or place of abode in Australia (while overseas)
- Duration and continuity of the individual’s presence in the overseas country
- Family and financial ties with Australia.
The weight to be given to each factor will vary with the individual circumstances of each case and no single factor is conclusive.
The intention of a particular individual to either become or cease to be an Australian resident is particularly important. As a result, the tax office is now placing more emphasis on this intention as indicated on the person’s Australian immigration incoming or outgoing passenger cards.
It is important to determine the correct residency status as Australian residents are taxed in Australia on their world-wide income, whereas non-residents are only taxed on their Australian-sourced income. Non-residents are also taxed at higher rates than residents. Residency status must be determined each year.