Residency and source of income

When to pay tax in Australia

If you are not an Australian resident at any time during the income year and you do not earn any income from an Australian source, you don't have to pay income tax.

You may have Australian tax obligations and may be liable to pay tax in Australia if:

• you are or became an Australian resident for tax purposes (Australian resident)
• you are a foreign resident for tax purposes (foreign resident) who has Australian-sourced income.

Lodging an Australian tax return

You may need to lodge an Australian tax return if:

• you are an Australian resident
• you became an Australian resident during the income year
• you are a foreign resident who earned assessable income that has an Australian source, or who has had tax withheld, during the income year.

During the time you are an Australian resident, all the following income is assessable:

• Australian-sourced income, including salary or wage income and investment income
• foreign-sourced income, unless you are a temporary Australian resident.

During the time you are a foreign resident, all Australian-sourced income is assessable. Your foreign-sourced income is generally not assessable.

For more information, see:

• Coming to Australia
• Work out if you need to lodge a tax return.

Change of tax residency due to COVID-19

Whether you are a resident for tax purposes in Australia depends on your particular circumstances. If you were a foreign resident here temporarily for some weeks or months due to COVID-19, you would not become an Australian resident for tax purposes if you:

• usually lived overseas permanently
• intended to return there as soon as you were able.

However, you will need to review your residency status for tax purposes if you:

• ended up staying in Australia for a lengthy period
• didn't return to your country of residency when you were able to do so.

In particular, you will need to consider your residency status in line with ATO guidance and taxation rulings (see below) if:

• you were an Australian citizen or permanent resident who returned to Australia due to COVID-19
• you continued to stay in Australia throughout the 2021 income year.

You will need to consider all your facts and circumstances including:

• your intention and purpose of coming to and remaining in Australia
• your living arrangements while in Australia
• your family and business or employment ties to Australia.

Choosing to stay in Australia when you were able to leave is a factor that will point towards you being a resident. This includes if you were able to leave Australia but did not do so, because of conditions or restrictions that applied, for example, quarantine requirements or restrictions on re-entering Australia.

Factors to consider in determining whether you were able to leave Australia include:

• government restrictions preventing you from leaving Australia or entering your usual country of residency
• a lack of commercial flights available to enable you to return to your country of residency.

For more information, see:

• Your tax residency
• Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia

Australian residents

Australian residents affected by COVID-19 included those who were temporarily overseas and those who had to return to Australia early from certain types of foreign service.

Temporarily overseas

If you usually lived and worked in Australia but were temporarily overseas due to COVID-19, your Australian tax obligations didn't change. If you were required to pay foreign income tax overseas, a foreign income tax offset will ordinarily reduce your Australian tax payable, see Guide to foreign income tax offset rules 2020).

Return to Australia early from certain foreign service

Australian residents whose their foreign service income may otherwise have been exempt under section 23AG of the Income Tax Assessment Act 1936 but who had to return to Australia early from foreign service due to COVID-19, are affected as follows:

• If you had already completed 91 days of continuous foreign service and met all the other requirements      
  • the earnings from that period of foreign service will continue to be exempt. This is so even if they were paid after your return (for example, wages paid in arrears and paid annual or holiday leave that accrued during the period of foreign service)
  • the earnings you earned after your return to Australia, even if they were in relation to your previous foreign service, are not earned undertaking foreign service and therefore will be assessable to you in Australia.
• If you had not completed 91 days of continuous foreign service (taking into account available exceptions) or not met all the other requirements, your foreign earnings from that period of foreign service are not exempt and therefore will be assessable to you in Australia.

For more information, see Section 23AG Early return from foreign service due to COVID 19 – foreign employment income.

Medicare levy and Medicare levy surcharge

If you are an Australian resident, you may be liable for Medicare levy, even if you were outside Australia for all or part of the year. Some reductions and exemptions apply.

In addition to the Medicare levy, you may have to pay the Medicare levy surcharge if you, your spouse or dependent children don’t have an appropriate level of private patient hospital cover and your income is above a certain amount (see Medicare and private health insurance).

Foreign residents

If you are a foreign resident, you usually pay tax on your Australian-sourced income only. Double-tax agreements (DTA) may apply between your home country and Australia.

In some circumstances the employment income you earned working remotely from Australia may not have an Australian source. Foreign-sourced employment income you earn while in Australia temporarily will generally be paid leave or salary or wages.

Income from paid leave earned while in Australia temporarily

If you usually worked overseas and earned foreign-sourced employment income and you were on paid leave (such as annual or holiday leave) since arriving in Australia temporarily due to COVID-19, the income:

• from your foreign employer for this leave was not from an Australian source
• does not need to be declared in Australia.

Salary or wages earned while working remotely in Australia temporarily

Whether employment income, including salary or wages, you earn is assessable depends on:

• whether it is from an Australian or a foreign source
• whether a double-tax agreement applies (see advice on double-tax agreements).

The source of income always depends on the facts. Usually, the place where the employment is exercised is very significant when deciding the source of employment income. However, in certain circumstances other factors may be more significant.

COVID-19 created a special set of circumstances that must be taken into account when considering the source of the employment income earned by a foreign resident who usually worked overseas but instead performs that same foreign employment in Australia.

Working in Australia less than 3 months

We accept that if the remote working arrangement was short term (3 months or less), the income from that employment won't have an Australian source.

Working in Australia longer than 3 months

For working arrangements longer than 3 months, your circumstances need to be examined to determine if your employment was connected to Australia. This includes examining if:

• the terms and conditions of your employment contract changed
• the nature of your job changed
• you started performing work for an Australian entity affiliated with your employer
• the economic impact or result of your work moved to Australia
• your economic employer – the entity for which you're providing services – was in Australia (see Taxation Ruling TR 2013/1)
• you performed work with Australian clients
• the performance of your work was wholly or to a significant degree dependent on you being physically present in Australia to complete it
• Australia became your permanent place of work
• your intention towards Australia changes.

Your employment income was likely to have an Australian source if:

• you chose to stay in Australia despite being able to leave
• you agreed with your employer that Australia can be your usual place of work until you chose to travel again.

This is because Australia was no longer a place where you temporarily and unexpectedly perform your work, but a usual and longer-term place of employment.

In some limited situations your employment income may not have had an Australian source. This may be the case if all of the following apply:

• The only thing that changed about your employment was that you were now doing it from Australia as a result of COVID-19.
• There were no other connections to Australia.
• You intended to, and did, leave Australia as soon as you could.
• The country in which you normally resided in permanently does not have a double-tax agreement with Australia. A double tax agreement may deem the employment income you earn to have an Australian source – see advice on double-tax agreements.

 

For more information, see Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties

Effect of a double-tax agreement on certain employment income you earn in Australia

Australia’s double-tax agreementsExternal Link (DTAs) provide that, in certain circumstances, employment income earned by a resident of another country while working in Australia for a short period is not to be taxed in Australia (the short-term visit exception).

If the short-term visit exception doesn't apply, employment income earned by a resident of another country while working in Australia may be deemed by a DTA to be from sources in Australia.

Each DTA must be checked carefully as wording, conditions and time periods vary between DTAs.

The short-term visit exception

Generally, employment income will not be taxed in Australia if:

• you are a resident of a country with which Australia has a DTA (the DTA country)
• you are not present in Australia for more than 183 days in aggregate in either an income year or a 12-month period (depending on the applicable DTA)
• your salary and wages are paid to you by, or on behalf of, an employer that is not an Australian resident
• your salary and wages are not deductible against the profits of an Australian permanent establishment of your employer.

Note that the conditions for the short-term visit exception varies between DTAs.

For example, in some DTAs:

• the maximum days or presence may be less than 183 days
• the days or presence do not necessarily all have to be in the same income year
• there may be breaks in the aggregate.