Tax residency can significantly impact whether you are paying taxes in Australia, and how much. For example, the majority of Australians who work overseas for two or more years are conferred the status of a Non-Resident, which means they do not have to pay taxes back in Australia. But what if you are a foreigner – how do you define whether or not you are eligible to pay taxes? In this article, we explore how Australia’s tax system work for both foreigners and locals.
So how do you actually determine your tax residency? There are several Residency Tests such as the Resides Test, Domicile Test, Superannuation Test and the 183-day rule. Ultimately, the decision rests with the Australian Taxation Office (ATO) based on the information you provide to them. But here are a few common scenarios to consider:
If you are an Australian returning from overseas and decide to live in Australia again, you are a tax-paying resident from the day you arrive back to the country.
If you are going overseas on a temporary basis and you are not setting up a permanent property overseas, you are a tax-paying resident.
If you are a foreign student enrolling at any educational institution and the course duration is lesser than 6 months, you are a tax-paying resident.
If you are visiting Australia and are scheduled to stay in the country over a span of 6 months and live at the same location of your job, you are a tax-paying resident.
If you are visiting Australia on a holiday trip with your family or visiting the country with a plan to stay in the country for less than 6 months, you are not a tax-paying resident.
If you are leaving the country permanently, you are not a tax-paying resident from the day you move out of the country.
What is a Dual Tax Agreement?
If you are a citizen of one country and earning in another country, yet both of these countries do not have any tax agreements, then you might end up paying taxes in both countries! With the ease of earning income from multiple sources whether locally or internationally, it’s imperative that you understand any tax agreements that you can benefit from in order to minimise your taxes.
Australia’s Dual Tax Agreements
Australia has made dual tax agreements with many countries that include the US, UK, Indonesia, Germany, Malaysia, Russia, Singapore, Vietnam, Hungry, and France.
For example, the dual tax agreement between Australia and the US states that the US will tax Australian residents who are earning an income from the US at the rate of five percent and that Australia will tax them based on normal tax brackets, but five percent less.
As a rule of thumb, there are different clauses on dual tax agreements depending on the country, your earning status, and your period of stay in Australia.
However, it is definitely much easier to get the help of an accountant to identify the best taxation advise for you and to ensure you minimise your taxes. Drop by for a chat with Femia Accountants to ensure you are not double taxed and only paying what is necessary.
Contact our office today on 9316 4500 or book a time to meet with us.