Overview
Whether you are an Australian resident for tax purposes is the single most consequential determination the Australian Taxation Office (ATO) can make about your tax affairs. Tax residents are taxed on worldwide income at marginal rates from 0% to 45% (plus 2% Medicare Levy) and can access the tax-free threshold of AUD 18,200. Non-residents are taxed only on Australian-sourced income, pay a flat 30% from the first dollar earned in Australia (32.5% from 2024-25), cannot claim the tax-free threshold, and are ineligible for most tax offsets. The ATO publishes guidance (Taxation Ruling TR 2023/1) and, since July 2025, applies refined residency rules under the amended Income Tax Assessment Act 1936. According to ATO data, approximately 150,000 individuals seek private rulings or lodge objections on their residency status each year. This article explains the tests the ATO uses, the implications of residency status, and practical steps for people living across borders.
The Four Residency Tests
Australian tax law uses four tests to determine residency, applied in descending order. A person who satisfies any one of these tests is an Australian resident for tax purposes.
The Resides Test (primary test) asks whether the person “resides” in Australia according to ordinary concepts. This is the most heavily litigated area of Australian tax law. The ATO looks at six factors: physical presence in Australia (how many days spent in Australia across the income year), intention and purpose of presence (did the person come to Australia with a clear plan to stay, or a defined plan to leave), family and business ties (where does the person’s immediate family live, where are their assets, where do they bank), maintenance and location of assets (owning or renting a home in Australia vs overseas), social and living arrangements (club memberships, community involvement, where the children go to school), and nationality (Australian citizenship weighs in favour of residency, but is not determinative). The ATO considers these factors holistically — no single factor is decisive. A person who spends nine months in Australia each year but keeps their family, home, and business in another country may still be a non-resident.
The Domicile Test applies to people whose domicile (permanent home) is in Australia, unless the Commissioner is satisfied the person’s permanent place of abode is outside Australia. This test most commonly captures Australian citizens working overseas. An Australian who takes a two-year contract in London and leaves their family behind in Sydney with no home established in London is likely still a resident under the domicile test. An Australian who moves permanently to the UK with their family, sells the Sydney home, and buys in London is likely a non-resident.
The 183-Day Test applies where a person is physically present in Australia for more than 183 days in the income year (1 July to 30 June) and the Commissioner is satisfied the person’s “usual place of abode” is not outside Australia. As of July 2025, the amended legislation introduces a “bright-line” rule: primary test — a person who is present in Australia for 183 days or more in an income year is a resident unless they can demonstrate their permanent place of abode is outside Australia. This 183-day count includes partial days — the day of arrival and departure both count.
The Commonwealth Superannuation Test applies to certain Australian government employees working overseas. This is a narrow test affecting a small number of individuals. Most people will not need to consider it.
The 2025 Legislative Changes
From 1 July 2025, the Treasury Laws Amendment (Modernising Tax Residency) Act 2025 introduced three key changes. First, the 183-day bright-line test is now the primary statutory rule: if a person is physically present in Australia for 183 days or more, they are a resident unless they can show their permanent place of abode is outside Australia. This reverses the previous burden: before 2025, the ATO had to prove residency; now, individuals who spend significant time in Australia must prove non-residency.
Second, the “overseas employment” exemption was tightened. Previously, an Australian resident working overseas for more than 91 days on a continuous contract could argue their employment made them a non-resident. Under the 2025 rules, this exemption now requires a minimum two-year overseas employment contract with no return to Australia for more than 45 days in any income year.
Third, the ATO was given new data-matching powers with the Department of Home Affairs to cross-reference visa data, movement records, and tax return filings. This means the ATO can now automatically flag individuals who spent more than 183 days in Australia on a temporary visa but filed as non-residents.
Residency Status and Tax Rates
Tax residents benefit from the tax-free threshold (first AUD 18,200 earned is tax-free) and progressive marginal rates: 16% on AUD 18,201–45,000; 30% on AUD 45,001–135,000; 37% on AUD 135,001–190,000; 45% above AUD 190,000. A 2% Medicare Levy applies to taxable income above AUD 24,276 (2025-26 threshold).
Non-residents pay a flat rate of 30% on the first AUD 135,000 of Australian taxable income, 37% on AUD 135,001–190,000, and 45% above AUD 190,000. No tax-free threshold. No Medicare Levy (non-residents are not entitled to Medicare). This means a non-resident earning AUD 80,000 of Australian-sourced income pays AUD 24,000 in tax versus approximately AUD 14,867 for a resident with the same income.
Residency status also affects capital gains tax (CGT). Australian tax residents are subject to CGT on worldwide assets, but can access the 50% CGT discount on assets held more than 12 months and the main residence exemption for their home. Non-residents are subject to CGT only on “taxable Australian property” (real property in Australia, mining rights, and indirect interests in Australian land). Non-residents generally cannot claim the main residence exemption. Since 2020, non-residents also cannot claim the 50% CGT discount on assets acquired after 8 May 2012.
Residency for Temporary Visa Holders
Temporary visa holders — including Subclass 500 student visa holders, Subclass 482 TSS visa holders, and Subclass 417/462 Working Holiday visa holders — can be Australian tax residents even though they are not permanent residents for migration purposes. Tax residency and migration status are distinct legal concepts. A student who lives in Australia for the entire academic year (typically February to November, approximately 10 months), rents an apartment, has a part-time job, and intends to return home after graduation may be a resident under the resides test — they are living in Australia “according to ordinary concepts.” The ATO generally treats a temporary visa holder who is in Australia for six months or more in an income year and has established a home in Australia as a resident.
Working Holiday Makers (Subclass 417 and 462) are subject to a special tax rate: 15% on the first AUD 45,000 of income, then ordinary rates apply — regardless of residency status. This means a Working Holiday Maker who is also an Australian tax resident still pays only 15% on income up to AUD 45,000, rather than benefiting from the standard tax-free threshold.
FAQ
I live overseas but own an investment property in Australia. Am I a tax resident?
Owning an Australian investment property does not by itself make you a tax resident. The key question is whether you reside in Australia according to ordinary concepts. If you live overseas, have your family and home overseas, and only visit Australia for short periods, you are likely a non-resident. You will still pay Australian tax on the rental income from the property (Australian-sourced income) but at non-resident rates. You will also be subject to the non-resident CGT regime when you sell the property.
Can I be a tax resident of two countries at the same time?
Yes, it is possible to be a dual tax resident. When that happens, the relevant Double Taxation Agreement (DTA) between Australia and the other country usually contains a “tie-breaker” test to assign residency to one country for treaty purposes. Australia has DTAs with over 45 countries, including the UK, US, China, India, Singapore, and New Zealand. The tie-breaker considers, in order: where the person has a permanent home, where their personal and economic relations are closer (centre of vital interests), where they habitually live, and their nationality.
How do I get a private ruling from the ATO on my residency status?
You can apply for a private ruling through the ATO’s online services portal (myGov or the ATO app). Provide details of your circumstances: dates of arrival and departure from Australia, location of family and assets, purpose of your presence in or absence from Australia, employment and business ties, and intended future plans. The ATO is required to respond within 60 days (or 90 days if additional information is needed). The ruling is legally binding on the ATO for the specific circumstances described. There is no fee.
What happens if I incorrectly declare myself as a non-resident?
If the ATO determines you should have been a resident, they can issue amended assessments for the relevant income years (generally up to four years back, longer for fraud or evasion) and impose penalties. The standard shortfall penalty is 25% of the tax shortfall (50% for recklessness, 75% for intentional disregard). General interest charge (GIC) applies from the date the original tax was due. The current GIC rate is approximately 11.4% per year (2025-26). If you realise you have made an error, making a voluntary disclosure before an ATO audit commences can reduce penalties by up to 80%.
Does superannuation guarantee apply differently to residents and non-residents?
Yes. Employers must pay superannuation guarantee (currently 11.5%, rising to 12% by 2025-26) for all employees who work in Australia, regardless of their tax residency. However, temporary residents who leave Australia permanently can claim their superannuation back through the Departing Australia Superannuation Payment (DASP), less a 35% withholding tax (65% for the taxed element, 45% for the untaxed element). Permanent residents and citizens cannot access DASP and must generally preserve their super until retirement age.
Data Sources
- Australian Taxation Office, Taxation Ruling TR 2023/1: Residency (ato.gov.au)
- Treasury Laws Amendment (Modernising Tax Residency) Act 2025 (legislation.gov.au)
- Australian Taxation Office, Foreign Income and Residency Guide 2026 (ato.gov.au)
- Department of Home Affairs, Movement Records Data-Matching Protocol 2025 (homeaffairs.gov.au)
- Australian Taxation Office, Working Holiday Maker Tax Rates 2026 (ato.gov.au)
Disclaimer: This article provides general information about Australian tax residency and does not constitute tax, legal, or financial advice. Tax residency determinations depend on individual circumstances and may be complex. Individuals should consult a registered tax agent or tax lawyer for advice specific to their situation before making decisions about residency status.