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Australia can be an attractive place to live and work for foreign individuals. As an individual, you may be considering relocating to Australia to expand your business or take advantage of employment opportunities.

If so, you should be aware of the tax implications that arise when you work in Australia. In this article, we explain how foreign individuals operating in Australia may pay tax as:

  1. an Australian tax resident;
  2. an eligible temporary resident; or
  3. a foreign resident.

1. Australian Tax Residents

Australia generally taxes its residents on their worldwide income from all sources.

Determining whether you are an Australian resident for tax purposes is different to immigration residency. You will be an Australian tax resident if you satisfy any of the following tests:

  • The Resides Test: This test assesses whether you reside in Australia by looking at various factors such as:
    • your behaviour while in Australia (e.g. social and living arrangements or where you keep your assets);
    • physical presence (e.g. how long you have been staying in Australia); and
    • your nationality.
  • 183-Day Test: Foreign individuals are assumed to be Australian tax residents if they are physically in Australia for more than 183 days. This is the case unless the Australian Taxation Office (ATO) accepts that:
    • the individual’s usual place of residence is outside Australia; and
    • they have no intention to take up Australian residence.
  • Domicile Test: This test looks at whether you have an Australian domicile. If the ATO is satisfied that your permanent place of abode is outside Australia, you will not be considered an Australian tax resident.
  • Commonwealth Superannuation Test: This is aimed at ensuring Australian public servants, such as foreign consular staff, remain Australian residents.

Further, the resides test and the 183-day test are most relevant for foreign individuals coming to Australia.

2. Eligible Australian Temporary Resident

Foreign individuals are temporary residents if:

  • they hold a temporary visa granted under the Migration Act 1958 (Cth); and
  • neither they nor their spouse are Australian residents within the meaning of the Social Security Act 1991(Cth).

As an eligible temporary resident, you will only have to pay tax on income:

  • earned in Australia; or
  • from employment or services performed overseas while you are a temporary resident.

Your foreign assets and income remain outside the Australian tax net even if you bring your income into Australia.

If a capital gains tax (CGT) event occurs while you are a temporary resident, you will not have to pay CGT unless the asset is ‘taxable Australian property’ (TAP). TAP includes direct (and certain indirect) interests in Australian real property, such as the disposal of an Australian investment property.

3. Foreign Tax Residents

Foreign tax residents only have to pay tax in Australia on their income from Australia. However in some cases they can take advantage of tax exemptions under either:

  • an applicable double taxation agreement (DTA); or 
  • Australia’s domestic CGT regime.

DTA Exemption

A DTA is a bilateral agreement between two countries that minimises double taxation across borders. Australia currently has DTAs with a number of countries including:

  • the United States;
  • the United Kingdom;
  • Singapore; and
  • China.

A foreign tax resident from a country that is party to a DTA with Australia may not have to pay Australian income tax. For example, a Singaporean foreign individual who comes to Australia on a three-month assignment must ordinarily pay Australian income tax. This is because the individual would perform their employment activities in Australia.

However, the Singapore-Australia DTA would likely ‘turn off’ Australia’s domestic taxing rights, so that the foreign resident is taxed only in Singapore over the relevant period.

CGT Exemption

Finally, foreign residents are generally not taxed in Australia on Australian-sourced capital gains. For example, a foreign resident investor could make a $10 million capital gain on the disposal of a listed Australian tech stock and pay no CGT in Australia (although they may be subject to CGT in their home country).

The only exception to this rule is when capital gains are made in relation to TAP assets. The foreign resident must then pay:

  • tax at the higher foreign resident tax rates; and
  • CGT without the benefit of the 50% CGT discount.

Key Takeaways

If you are thinking about relocating to Australia, it is vital that you are aware of the tax implications of working in Australia. Income tax and CGT liability varies depending on whether you are:

  • an Australian tax resident;
  • a temporary resident; or
  • a foreign resident.

Accordingly, to ensure that you understand the tax consequences of your move prior to your arrival, call LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.

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