Why your Australian Tax Residency is so important

Determining your residency is crucial in determining where and how much you are taxed. Unfortunately, when it comes to determining residency, the answer is not always clear cut and if incorrectly assessed, you could be liable for thousands in tax and even interest and penalties. The Australian Taxation Office (ATO) uses different standards in determining residency for tax purposes.

However, what makes determining your residency status so complicated is that residency is very much based around the facts and circumstances of your life, and as your facts and circumstances differ from every other expat, there’s no hard and fast rules to determine your residency status.

Why does it matter?

Residency is critical to your tax situation. If you are a deemed to be an Australian tax resident, you are obligated to lodge an Australian tax return reporting all worldwide income from all sources. If you are not a tax resident, you are only taxed in Australia on your Australian-sourced income – i.e. you do not need to report your worldwide income (unless you have a HECS/HELP debt or own any properties in Australia).

The ATO continues to roll out various audits on Australian residents who work overseas, so it’s vital that you know where you stand.

Working overseas doesn’t mean you are a non-resident…

If you leave Australia and work overseas, this does not mean you have ceased being an Australian resident for tax purposes. Residency is instead a question of fact that will be determined by your individual circumstances. You would need to establish that you have severed your connection with Australia to be a non-resident – i.e. Australia is no longer considered home. There are also various other factors that need to be considered with determining residency and unfortunately there’s no clear cut answers.