In last week’s article we looked at the tests that the Australian Tax Office (ATO) uses to determine whether or not you are an Australian resident. But what happens once the ATO determines your status? What difference does it really make whether or not they consider you to be a resident? Well, depending on your circumstances, quite a lot!
While there are differing tax rates for residents and non-residents (which we’ll look at later in the article), the main issue that your status will impact relates to exactly what income the ATO assesses.
If you are a foreign resident (non-resident of Australia) then you only pay tax on income that you earned while in Australia. For example, if you left a $200,000p.a. job overseas to backpack around Australia for six months (tourists generally aren’t considered residents even if they are in Australia for more than 183 days) doing the occasional job to minimise your costs (lets say you earn $5,000 while in the country), then you would only pay tax to the ATO on that $5,000 (while paying tax on your other income in the country you earned it). If the tax rate in the other country is significantly lower (or higher) than Australia’s then you will pay a lot less (or more) tax.
If you are considered to be an Australian resident, then the ATO will tax you on any income you earn in Australia, and any income you earn overseas. You will receive a tax offset for any tax obligations you have in the country where the income was earned, but you wouldn’t receive the tax benefits of earning income in a country that has significantly lower tax rates than Australia. For income earned in Australia, residents pay less tax than non-residents on the same income, as the tables below show:
Tax Rates for non-residents
- 0-$87,000: 32.5% (32.5c/dollar)
- $87,001 – $180,000: 37% ($28,275 plus 37c/dollar over $87,000)
- $180,001+: 45% ($62,685 plus 45c/dollar over $180,000)
Note: foreign residents aren’t required to pay the 2% Medicare levy. This table doesn’t include the 2% Temporary Budget Repair Levy payable on income above $180,000.
Tax rates for residents
- 0-$18,200: nil
- $18,201 – $37,000: 19% (19c/dollar over $18,200)
- $37,001 – $87,000: 32.5% ($3,572 plus 32.5c/dollar over $37,000)
- $87,001 – $180,000: 37% ($19,822 plus 37c/dollar over $87,000)
- $180,001+: 45% ($52,232 plus 45c/dollar over $180,000)
Note: This table doesn’t include the 2% Medicare Levy that most residents pay or the Temporary Budget Repair Levy payable on income above $180,000.
As you can see, non-residents pay tax immediately on their income, which means that in higher tax brackets, they will pay roughly $10,000 than residents on the same income.
By Jennifer Lowe