Non-Resident Tax Rates and Determining Your Residency Status

Moving closer to tax time often makes people a little tense. You want to lodge your tax return correctly. And get your refund as quickly as possible.

For many Australians, this is a simple process. However, many people must pay the non-resident tax rates and find this to be challenging, especially when they are unfamiliar with Australian income tax laws.

We’ve prepared a guide to help you understand the ins and outs of the non-resident tax rates and assist you in determining if you must lodge a return.

What is the Non-Resident Tax Rate for 2023-2024?

For the 2023-2024 tax year, the amount of individual income tax a non-resident must pay is as follows.

Foreign Resident Tax Rates 2023–24

Source: ATO 2024

Please note, non-residents do not pay the Medicare levy.

Resident vs Non-Resident – Why Does It Matter?

Your status as an Australian resident or non-resident matters because it significantly impacts how much you are taxed. Aussie residents are taxed on all of their income, regardless of where they earned it. Non-residents will pay based on the income they earned while in Australia, not their foreign income. However, the effective foreign resident tax rates are much higher. Additionally, ten per cent is held for taxes if you earn interest from Australian bank accounts.

How to Determine Your Residency Status for Tax Purposes

Figuring out if you are an Australian resident for tax purposes or a foreign resident for tax purposes can be tricky. The Australian Taxation Office (ATO) has several tests to help determine if you are a resident.

1. The Resides Test

The primary test to determine whether you are a resident or non-resident is called the Resides Test. Several factors are considered when applying the Resides Test. These include:

• Business or Employment Ties – If you are settled into Australia because of a job or business, you appear to be a resident.
• Family – If you have family in Australia who are settled in as permanent residents, that is a strong indicator of your residency
• Intention and Purpose – Your purpose and intent are essential. Not everyone who comes to Australia with the plan of staying can work out. In other cases, you may have come for a holiday. And you find that your circumstances have changed, and you will be in the country for an indefinite period.
• Maintenance and Location of Assets – If you have assets like a home, a car, and bank accounts, you are likely a resident
• Physical Presence – Typically, the ATO regards those who have been in Australia for more than six months to be residents
• Social And Living Arrangements – Social And Living Arrangements- How you live your day-to-day life as far as social contacts, ties to the community, use of community services and friendships point to your residency

2. The Domicile Test

Your domicile is the place you call home, even if you are not living there. So, if you have a permanent place you call home in another country, your domicile is not in Australia.

3. The 183-Day Test

If you are physically present in Australia for 183 days or more out of a year, you are likely a resident. Keep Additionally, if you can prove your abode is in another country and that you do not wish to make Australia your permanent home, you will be seen as a non-resident.

4. The Commonwealth Superannuation Fund Test

If you are an employee who is eligible to take part in the Superannuation Act 1976 or the spouse or a child under 16 years of age of such a person, you are considered a resident.

What are Some of The Advantages and Disadvantages of Residency?

There are several advantages and disadvantages to residency. Here is a list of both:

• Residents of Australia are taxed on global income, they pay the Medicare Levy, but residents also enjoy better tax rates. Additionally, residents must take care of Capital Gains Tax. Residents also have the advantage that bank account interest is assessed at the usual rate.
• Non-residents are only taxed on the income they earn in Australia. The Medicare Levy is not paid, but non-residents cannot make claims. Furthermore, non-residents have a tax of ten per cent levied for the interest bank accounts earn, the tax rate is higher for non-residents, and they are liable for Capital Gains Tax on actual property and not on shares or investments.

Do Working Holiday Makers Get Taxed Differently?

Yes, working holiday makers have a different tax rate to foreign residents.

Differences

1. Tax Rate Structure:

• Foreign Residents: The tax rates for foreign residents start with a flat rate of 32.5c for each $1 from the first dollar earned, without a tax-free threshold. As the income increases, the rates and additional amounts adjust accordingly at higher income brackets.
• Working Holiday Makers: In contrast, working holiday makers have a more gradual tax rate structure starting with 15c for each $1 up to $45,000. Beyond this, the tax rates increase, and additional amounts are charged as income rises, similar to the foreign resident rates but starting at a lower rate of tax.

2. Initial Tax Rates:

• Foreign Residents: Pay 32.5c for each $1 from 0 – $120,000.
• Working Holiday Makers: Pay 15c for each $1 from 0 – $45,000.

3. Income Brackets:

• Both categories have specific income brackets, but the starting point for working holiday makers is more favourable, with a lower tax rate on the first $45,000 of income.

4. Thresholds for Higher Rates:

• The thresholds at which higher rates apply differ significantly, with working holiday makers entering a higher tax rate beyond $45,001, whereas foreign residents start at a higher rate from the first dollar earned and move to even higher brackets at $120,001 and $180,001.

5. Medicare Levy:

• Foreign Residents: Do not pay the Medicare levy.
• Working Holiday Makers: This group is also not required to pay the Medicare levy, aligning both categories in this aspect.

Working Holiday Maker Tax Rates 2023–24

Source: ATO 2024

How About Temporary Residents?

Because a significant number of people with temporary residence visas visit Australia each year, the ATO considers this group to be residents for tax purposes. This allows for a favourable tax rate.

You can consider yourself a temporary resident if you do not meet the criteria outlined in the Social Security Act of 1991. Even though you reside in Australia, you are not a permanent resident or citizen for tax purposes.

What is the Withholding Tax Rate for Non-Residents?

The withholding rate is 10% for interest payments and 30% for unfranked dividend and royalty payments. Rates apply to all payees unless payment goes to a resident of a nation with a tax treaty with Australia, and a lower rate is mentioned in the treaty. If a lower fee is noted, that rate will apply.

Can I Get My Tax Refund Instantly?

To get your refund today, simply fill out our online form and we will call you back to discuss your taxes. We will also give you a free estimate regarding the amount of your return. You can choose whether you want your refund in an hour or wait two weeks for it. From here, you can approve your refund and we’ll lodge your maximised tax return ASAP.

Disclaimer: This information is general in nature and does not take into account your individual circumstances. For expert advice relating to your specific needs, you can contact one of our registered tax agents. 

FAQs

What is a non-resident for tax purposes in Australia?

A non-resident for tax purposes in Australia is someone who does not reside in Australia or who resides in Australia for less than six months in a financial year.

What is the Australian non-resident tax rate?

The tax rate for non-residents in Australia is 32.5% for all income up to $87,000 AUD. Income above $87,000 AUD is taxed at a rate of 45%.

Do non-residents have to pay tax on income earned outside of Australia?

Non-residents are only taxed on income earned in Australia. Income earned outside of Australia is generally not subject to Australian tax.

Do non-residents have to pay tax on rental income from Australian property?

Yes, non-residents are required to pay tax on rental income earned from Australian property. The tax rate is the same as for other types of income, with a tax-free threshold of $18,200 AUD.

Are there any exemptions for non-residents on certain types of international work?

Yes, there are exemptions for non-residents on certain types of international work, such as income earned by foreign government employees and income earned by employees of certain international organisations.

What is the CGT discount for non-residents in Australia?

Non-residents are not eligible for the CGT discount in Australia. Instead, they are subject to a flat rate of 32.5% on any capital gains made on Australian assets.

How is residency status determined for tax purposes in Australia?

Residency status is determined by the Australian Taxation Office (ATO) based on a number of factors, including the length of time spent in Australia, the purpose of the visit, and the individual’s ties to Australia.

What are the four tests for residency of individuals in Australia?

The four tests for residency of individuals in Australia are the resides test, the domicile test, the 183-day test, and the Commonwealth superannuation test.

Are there any tax treaties between Australia and other countries that affect non-resident tax rates?

Yes, Australia has tax treaties with many other countries that can affect non-resident tax rates. These treaties are designed to prevent double taxation and to promote trade and investment between countries.

Are there any changes to non-resident tax rates in Australia expected in the near future?

There are no major changes to non-resident tax rates in Australia expected in the near future. However, tax laws and regulations are subject to change, so it is important to stay up-to-date with the latest developments.