What income you pay tax on

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If you haven’t done so already, you first need to determine your residency status.

Australian residents

As an Australian resident:

  • you must declare all income you earned anywhere in the world on your tax return
  • you're entitled to the tax-free threshold – this means there is no tax on your income up to a certain amount
  • you'll generally pay the Medicare levy.

Australian residents with a tax file number generally pay a lower rate of tax than foreign residents.

If you're an Australian resident for tax purposes and you:

  • have a temporary resident visa: most of your foreign income is not taxed in Australia. But we do tax your income from short periods of work you do overseas while you are a temporary Australian resident (see Foreign income exemption for temporary residents)
  • receive foreign income: this income may be taxed in both Australia and the country from which you received it. If you've paid tax in another country on your foreign income, you may be entitled to an Australian foreign income tax offset
  • receive income from a country that Australia has a tax treaty with: you can ask the tax authorities in that country to reduce their withholding tax or to exempt you from paying tax in that country. You can do this by supplying a tax relief form or a certificate of residency or status.

Foreign residents

If you are a foreign resident working in Australia:

  • You declare on your tax return any income you earned in Australia, including:  
    • employment income
    • rental income
    • Australian pensions and annuities, unless an exemption is available under Australian tax law or a tax treaty
    • capital gains on Australian assets.
  • You aren’t entitled to the tax-free threshold. This means you pay tax on every dollar of income you earn in Australia.
  • You don’t pay the Medicare levy (and you aren't entitled to Medicare health benefits).
  • You don’t declare any Australian-sourced interest, dividends or royalties you derive while you are a foreign resident, provided the Australian financial institution or company that pays you has already withheld tax. They would do this if you advised them that you were a foreign resident.

Payments for the following are subject to foreign resident withholding tax:

  • promoting or organising casino gaming junket arrangements
  • entertainment and sports activities
  • contracts for the construction, installation and upgrading of buildings, plant and fixtures and for associated activities.

Your payer will withhold this tax. You report the payments in your Australian tax return and claim the withheld amounts as a credit against the tax assessed.

See also:

If your residency status changes during the year

If your status has changed from foreign resident to Australian resident during the income year, answer 'yes' to the question on your tax return 'Are you an Australian resident?'. This way you are taxed at Australian resident rates for the tax year. Because you have been a foreign resident for part of the year, your tax-free threshold will be reduced.

You must include in your tax return any foreign-sourced income you received while you were an Australian resident. Don’t include any foreign-sourced income you received before you became an Australian resident or after you ceased to be an Australian resident.

Any Australian-sourced interest, dividends and royalties derived when you were not an Australian resident are subject to the withholding tax provisions and should not be included in your tax return.

Foreign residents do not have to pay the Medicare levy. In your tax return you can claim as exempt days the number of days in the income year that you are not an Australian resident.

See also:

Last modified: 06 May 2016QC 33208