Residency and source of income
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 do not 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.
On this page:
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.
Change of tax residency due to COVID-19
Whether you are a resident for tax purposes in Australia is a question of fact that requires consideration of your particular circumstances.
If you are a foreign resident here temporarily for some weeks or months due to COVID-19, you will not become an Australian resident for tax purposes if you:
- usually live overseas permanently
- intend to return there as soon as you are able.
However, you will need to review your residency status for tax purposes if you:
- end up staying in Australia for a lengthy period
- don't plan to or don't return to your country of residency when you are 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 are an Australian citizen or permanent resident who returned to Australia due to COVID-19
- you have 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/employment ties to Australia.
Choosing to stay in Australia when you have been able to leave is a factor that will point towards you being a resident. This includes if you have been able to leave Australia but did not do so, because of conditions or restrictions that apply, or may apply. For example, quarantine requirements or restrictions on re-entering Australia.
Factors to consider in determining whether you have been able to leave Australia include:
- government restrictions preventing you from
- leaving Australia
- entering your usual country of residency.
- a lack of commercial flights available to enable you to return to your country of residency.
Australian residents affected by COVID-19 include those who are temporarily overseas and those who have had to return to Australia early from certain foreign service.
If you usually live and work in Australia but are temporarily overseas due to COVID-19, your Australian tax obligations don't change. If you're required to pay foreign income tax overseas, a foreign income tax offset will ordinarily reduce your Australian tax payable.
Return to Australia early from certain foreign service
Australian residents who have had to return to Australia early from foreign service due to COVID-19, where their foreign service income may otherwise have been exempt under section 23AG of the Income Tax Assessment Act 1936, 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 are 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 are 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.
- 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 are 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.
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.
Source of employment income
If you are a foreign resident, in some circumstances the employment income you earn 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 work overseas and earn foreign-sourced employment income and you have been on paid leave (such as annual or holiday leave) since arriving in Australia:
- the income from your foreign employer for this leave is not from an Australian source, and
- you therefore do not need to declare it in Australia.
Salary or wages earned from continuing foreign employment working remotely while in Australia temporarily
Whether employment income, including salary or wages, you earn is assessable depends on:
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 has 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 works overseas but instead performs that same foreign employment in Australia.
Working in Australia less than three months
We accept that if the remote working arrangement is short term (three months or less), the income from that employment won't have an Australian source.
Example: Short-term working arrangement for three-month period
Eric is a financial adviser who came to Australia for a holiday on 20 December 2019, intending to go home at the end of January 2020.
He decided not to leave because of COVID-19 but intended to return home as soon as it was safe.
He started working remotely in Australia on 1 February doing the same work he would do in his country of residency for his foreign employer.
The three-month period starts on 1 February and ends on 30 April 2020. It doesn't matter if Eric is a full-time or part-time employee. His employment income for this three-month period won't be considered to have an Australian source.
End of example
Working in Australia longer than three months
For working arrangements longer than three months, your circumstances need to be examined to determine if your employment is connected to Australia. This includes examining whether:
- the terms and conditions of your employment contract change
- the nature of your job changes
- you start performing work for an Australian entity affiliated with your employer
- the economic impact or result of your work shifts to Australia
- your economic employer – the entity for which you're providing services – is in Australia (see Taxation Ruling TR 2013/1)
- you perform work with Australian clients
- the performance of your work is wholly or to a significant degree dependent on you being physically present in Australia to complete it
- Australia becomes your permanent place of work
- your intention towards Australia changes.
Your employment income is likely to have an Australian source if:
- you have chosen to stay in Australia despite being able to leave
- you agree with your employer that Australia can be your usual place of work until you choose to travel again.
This is because Australia is 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 an Australian source. This may be the case if all the following apply:
- the only thing that has changed about your employment is that you are now doing it from Australia as a result of COVID-19
- there are no other connections to Australia
- you intend to, and do, leave Australia as soon as you can
- the country in which you normally reside 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.
Example: Circumstances of employment change to an Australian source
Jane is an IT professional residing overseas in a country that does not have a double-tax agreement with Australia. Jane services software applications for her employer.
She can undertake this work remotely anywhere in the world. On 1 March 2020 she returns to Australia temporarily due to COVID-19, continuing to work exclusively for her foreign employer from Australia for as long as she is able.
Nothing else about her employment changes until 1 May 2020. On this date, due to a shortage of work with her foreign employer, Jane begins similar work for a related Australian entity. For this work, she is assigned work by, and reports to, an Australian manager.
The employment income Jane earns between 1 March and 30 April 2020 is foreign sourced as it's not connected to Australia.
The employment income Jane earns from 1 May 2020 is Australian sourced due to the change in her employment circumstances.
From 1 May 2020, Jane’s employment income is assessable in Australia.
End of example
Example: Retention of foreign source as circumstances of employment remain unchanged
Katie is a graphic designer residing overseas in a country that does not have a double-tax agreement with Australia. Katie undertakes graphic design work for a foreign employer relating to foreign clients.
On 1 February 2020, Katie came to Australia to visit relatives. However due to COVID-19, she remains in Australia but intends to return overseas as soon as it was safe.
Katie's employer agrees to temporarily allow her to work from Australia performing the same role for her foreign employer.
The only thing that has changed about Katie's employment is that she is temporarily performing the work in Australia until she is able to leave.
The employment income Katie earns – from when she comes to Australia on 1 February 2020 – continues to be foreign sourced.
Katie will need to keep reviewing her circumstances for any changes in her residency status (see above) or the source of her employment income. If Katie becomes an Australian resident for tax purposes, both her Australian and foreign sourced income will be assessable income.
End of example
- 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 does not 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 from DTA to DTA.
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.
Example: accumulation of more than 183 days
Ian spent the following time in Australia:
- 15 December 2019 to 3 January 2020 (20 days)
- 10 March 2020 to 1 October 2020 (176 days)
Ian's time in Australia exceeds 183 days. Therefore, the DTA does not prevent Australia from taxing Ian's Australian-sourced salary or wages income in either the 2019–20 or 2020–21 income years.
End of example
Find COVID-19 related guidance on who must lodge a tax return, how to work out if residency status has changed, whether income is Australian sourced and double-tax agreement implications.