After spending several weeks of hard work and endless phone calls, getting a retirement annuity transferred from South Africa to Australia, I again realised why one of the very first questions you are asked on your tax return is: “Are you an Australian resident?” It may seem like an unnecessary question, but the ATO has to get this question cleared up early, as it makes a big difference to everything else that follows.
The ATO views residency in an entirely different way to other Australian agencies, which deal with immigration, visas and citizenship. Whether you’re defined as a resident or non-resident for tax purposes has no impact on your passport or even your status as a permanent resident, and vice versa.
The ATO’s definition of a resident will determine whether your income is taxed in Australia for a financial year. The tax law contains a series of tests to determine your residency status. If you “reside” in Australia under the usual meaning of the word, you don’t need to look at any of the prescribed tests. It is important to note that you can be considered a tax resident just by your physical presence, without being an ordinary resident of Australia.
The Australian Taxation law treats residents and non-residents differently for tax purposes. Australian residents are generally taxed on all of their income, from here and from overseas, and non-residents are taxed only on income sourced in Australia. The effective tax rates are higher for non-residents, and they are not eligible for the tax-free threshold of $18,200. Non-residents do not pay the Medicare levy (and cannot claim Medicare benefits) and will have 10% of any interest earned from Australian bank accounts withheld for tax.
You can find more information here – The ATO Australian Determination of Residency tool
If you think you need to determine your residency status, please contact Optima Partners for further information.
SMSF/Snr Accountant – Optima Partners