Everything you need to know about non-residents tax obligations
Paying tax is an essential part of living in a functional, democratic society. Everyone who earns an income in Australia is required to pay tax. These are tax obligations, and they must be understood by all to ensure that everyone is paying their way fairly.
Whether you are an individual or a business operating in Australia, this guide will help you navigate your tax responsibilities. We’ll take a look at exactly what tax obligations are, how they apply to non-residents of Australia, and how you can make the most of them.
If you want to talk to a personal tax expert, then get in touch with Clear Tax. Our expert non-resident tax accountants can help you navigate your obligations to make sure that you are paying only what you need to.
What are tax obligations?
Tax obligations are essentially the legal responsibilities of individuals or entities to pay taxes to the Australian government. These obligations vary depending on the tax laws of a particular country and the taxpayer’s residency status.
What are tax obligations in Australia?
In Australia, tax obligations are governed by the Australian Taxation Office (ATO), and apply to both residents and non-residents living and earning money in the country. These obligations differ between individuals and circumstances, with one of the key differences being the obligations aligned to Australian residents and Australian non-residents.
Tax obligations for Australian residents
Here are the key facts about tax obligations for Australian residents:
- Australian residents are subject to tax by the ATO on their worldwide income
- Residents must report all of their income on their annual tax return
- Residents can also claim deductions and tax offsets in their annual tax return
- Tax rates for residents are progressive, increasing with higher income levels
Tax obligations for Australian non-residents
Non-residents, on the other hand, have different tax obligations in Australia. Here are the key facts about tax obligations for Australian non-residents:
- Non-residents are generally only taxed on their Australian-sourced income
- This income can include income from employment, business activities, and investments conducted in Australia – known as the “source principle” of taxation
- Non-residents also need to submit a tax return to lodge this source principle
- Tax offsets and refunds can also be claimed during this process
How do I determine my residency status for tax purposes?
An essential first step in understanding your tax obligations is to determine your residency status in Australia. The ATO provides guidelines to determine residency, taking into account factors such as the length of stay, purpose of visit, family and business ties, and more.
If you are unsure about your residency status, seek professional advice from Clear Tax, or refer to the ATO’s guidelines.
How do I lodge a tax return as a non-resident?
As discussed above, non-residents who earn income in Australia may be required to lodge an Australian tax return, if they have earned taxable income in Australia.
We always recommend consulting a tax professional at Clear Tax before lodging your tax return as a non-resident. This will ensure that you get the most out of your return while remaining compliant with tax law.
What are the tax rates for non-residents?
Non-residents are subject to different tax rates compared to residents. The tax rates for non-residents are generally higher, and there is no tax-free threshold.
The ATO provides a schedule of tax rates applicable to non-residents, which you can find below:
|Taxable income||Tax on this income|
|$0 – $120,000||32.5c for each $1|
|$120,001 – $180,000||$39,000 plus 37c for each $1 over $120,000|
|$180,001 and over||$61,200 plus 45c for every $1 over $180,000|
These are the non-resident tax rates for 2023-2024, and may be subject to change in the future.
Should I undertake withholding tax?
In certain cases, the payer of Australian-sourced income to non-residents is required to withhold tax at the source. This is known as withholding tax and is applicable to income such as:
- Payments to contractors
The withheld tax is then remitted to the ATO on behalf of the non-resident recipient.
What are double taxation agreements?
Australia has signed Double Taxation Agreements (DTAs) with many countries to prevent individuals and businesses from being taxed twice on the same income.
These agreements provide relief by allowing eligible taxpayers to claim tax credits or exemptions for tax paid in the other country.
Non-residents can check if their home country has a DTA with Australia to determine how it impacts their tax obligations. You can find this information under the Treasury’s Income Tax Treaties list.
What are some examples of tax obligations of non-residents in Australia?
Let’s consider a few examples to illustrate the tax obligations of non-residents in Australia:
Example 1 – Jia
Jia is a Chinese non-resident who has been seconded to an Australian company on a short-term contract. She earns a salary of $185,000 for the financial year and will be subject to Australian tax on her employment income as it is sourced in Australia.
Jia must lodge an Australian tax return and pay tax at the applicable non-resident tax rates. At a tax rate of $61,200 plus 45c for every $1 over $180,000, Jia will pay $63,450 in tax.
Example 2 – John
John is a British expatriate who owns an Airbnb investment property in Australia. He earns holiday rental income of $22,000 during the year. John is required to lodge an Australian tax return and report the rental income.
John will be taxed on this income at the non-resident tax rates and will have to pay $7,150 in tax.
Both Jia and John are able to claim various offsets and discounts on the tax they pay. These can be hard to navigate and difficult to understand – which is why we always recommend engaging a tax professional like our team at Clear Tax.
How do I effectively navigate tax obligations of non-residents?
Tax obligations can be complex, especially for non-residents of Australia. We always recommend seeking professional advice from a tax accountant or registered tax agent who specialises in international taxation. They can provide personalised guidance based on your specific circumstances and help you comply with your tax obligations.
How can Clear Tax help?
The team at Clear Tax has decades of combined experience managing tax obligations for international and non-residents. Our team can help you:
- Remain compliant with tax laws
- Avoid penalties for non-compliance
- Determine your residency status for tax purposes
- Fulfil your tax obligations appropriately
- Lodge your tax returns
Get in touch with our team to seek professional advice in navigating the complexities of international taxation. Our team is here to help you pay less tax while making informed decisions.