Info for Foreigners Working in Australia; 457 Visa Holders

I’m from overseas. Must I lodge a tax return in Australia?

Australian Tax for British, Americans, US Citizens

Who should lodge my tax return, and when?

Residency and citizenship

Whether you need to lodge a tax return and what information you must include will be determined by whether you are a Resident of Australia for Tax Purposes. This is not the same thing as a citizen or permanent resident.

You are likely to be a resident for tax purposes if you:

have always lived in Australia or you have come to Australia to live permanently
you have been in Australia continuously for six months or more, and for most of that time you worked in the one job and lived at the same place
have been in Australia for more than six months of the income year (unless your usual home is overseas and you do not intend to live in Australia – for example, you are a working holiday maker)
you go overseas temporarily and you do not set up a permanent home in another country, or
are an overseas student enrolled in a course of study for more than six months duration.

The Tax Office have a tool on their website: Am I a resident for tax purposes? There are various other factors to consider in making the determination, which we will discuss with you in consultation.

Tax treatment of Australian residents and non-residents

Australian residents must declare their worldwide income. They are entitled to the tax-free threshold and most pay the Medicare Levy.

Foreign tax residents pay tax on their Australian-sourced income at different rates to Australian residents and are not entitled to a tax-free threshhold. They cannot claim certain tax offsets and some don’t pay the Medicare Levy.

If you are a non-resident of Australia, you only need to lodge a tax return if you have income that is taxable in Australia. This excludes any income from which non-resident withholding tax has been deducted.

The Australian Tax Office comprehensively outlines the circumstances under which a person must lodge a tax return here:

http://www.ato.gov.au/content/00314024.htm

Many of these reasons most commonly apply to foreigners who are Australian residents for tax purposes.

You must lodge a tax return for the year if (and this is not the full list):

you paid tax under the pay as you go (PAYG) withholding or instalment system, or
had tax withheld from payments made to you.

You carried on a business

You were an Australian resident for tax purposes and you had exempt foreign employment income and $1 or more of other income.

You received income from dividends or distributions exceeding $6,000 an you had franking credits or amounts withheld.

Income from overseas

Australian residents must declare their worldwide income in their tax returns. Australia has dual-taxation arrangements in place with many countries, which will affect your tax position. You will typically receive a foreign tax credit for any tax you have paid on income overseas. The system has been designed so that you should not generally pay more tax on your total income than you would have paid had it all been earned in Australia. Australians who don’t declare their overseas income are routinely detected through the Tax Office’s information tracking and cross-border data sharing activities.

Temporary residents

Temporary residents – i.e., those holding temporary resident visas under the Migration Act 1958 and are not Australian residents – can enjoy the Australian resident tax rates and exemption from tax on foreign income and capital gains. It is recommended to seek professional advice about how these complex rules apply in your individual circumstances.

Tax lodgment and payment dates

The Australian tax year runs from 1 July to 30 June. Australians must lodge their tax returns by 31 October, however, those registered with a Tax Agent usually have until 15 May the following year, provided their affairs were up to date on 30 June and they were on an agent’s ATO client list by 31 October.

If you are British.

In Australia, almost all working adults must lodge a tax return. The Australian system is based around self-assessment, which means that you are responsible for declaring your income and expenses to the Australian Tax Office. What you declare will be compared with other data submitted to the Tax Office by banks, employers and other entities. The Tax Office shares data with sources overseas too.

Many Brits are used to having tax withheld from wages and everything taking place “under the hood”. They may never see an accountant or tax agent, nor ever need to, in the UK.

In Australia, most people are entitled to claim a wide variety of expenses as tax deductions. This can make a big difference to your annual tax bill or refund. Many expenses incurred to earn income in Australia are tax deductible, as well as donations to certain charities. There are also tax offsets which apply to medical expenses as well as a raft of other concessions you may not know about.

For this reason, around 70% of the 12 million individual Australians who lodged tax returns last year chose to see a tax agent or accountant to advise and represent them.

If you are American.

As a US Citizen it is likely that you’re used to including all kinds of income and expenses in your tax return. You may also be required to lodge a US tax return whilst still being a tax resident of Australia.

The way the Australian system classifies and defines income is somewhat different to how the US does, and how certain expenses can be claimed also differs. Additionally, some deductions can be claimed without receipts provided they were incurred.

For this reason, last year around 70% of the 12 million individual Australians who lodged tax returns chose to see a tax agent or accountant to advise and represent them.

Words of Caution – Choose a Registered Tax Agent

Make sure you choose a registered tax agent.

Only registered tax agents can legally charge to provide tax advice or to lodge tax returns. You should always check. The Tax Practitioners Board have an online register here. The information required to lodge a return includes your Tax File Number, legal name, address and date of birth. You should be very careful that this information stays in the right hands. Tax Agents are regulated by the Australian Government but do not work for the government. They must pass character tests, hold the appropriate insurance cover, and meet strict professional, ethical, work experience and academic requirements.

More time to lodge: The Australian tax year runs from 1 July to 30 June. Australians must lodge their tax returns by 31 October, however, those registered with a Tax Agent usually have until 15 May the following year, provided their affairs were up to date on 30 June and they were on an agent’s ATO client list by 31 October.

Words of Caution for Casual and Temporary Workers

Some employers have been known to take advantage of temporary workers by asking them to “work under their own ABN”. Some employers think this conveniently absolves them from having to withhold tax from wages, but it can also compromise insuring workers against accident and injury and avoid paying contributions to their pension funds (superannuation).

Anyone earning income in Australia is liable to pay tax, and if none has been withheld from your wages you may be building up a significant tax debt; which could affect your ability to stay in Australia or return here if unpaid. If you are worried you may end end up in this difficult situation, ask for advice now.