Australia tax for foreigners and expats (tax years 2023/24 and 2024/25)

This overview of Australian tax for foreigners is intended as a guide for people living in Australia.

Some of the information will also be relevant for Australians living outside of Australia but who still have assets and connections to Australia.

This guide must not be used in isolation to make any financial decisions about your Australian tax affairs and you should always seek advice from an Australian tax specialist.

If you need assistance with your Australian tax matters, please request a free introduction to one of our trusted Australian tax partners.

Australian tax basics for foreigners living in Australia

The Australian tax year runs from 1st July to 30th June each year and any tax returns are due by 31st October.

If you are a foreign tax 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

As a foreign tax resident:

• 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 often entitled to Medicare health benefits).
• You don’t declare any Australian-sourced interest, dividends or royalties you derive while you are a foreign tax 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.
• Australian tax residents with a tax file number generally pay a lower rate of tax than foreign tax residents.

Who pays tax in Australia?

Australian tax residents are generally subject to Australian tax on worldwide income. Non-residents are subject to Australian tax on Australian-source income only.

An exemption from Australian tax on certain income is available for individuals, potentially expats, who qualify as a temporary resident.

Temporary residents are generally exempt from Australian tax on foreign-source investment income (but not foreign employment income) and capital gains realised on assets that are not taxable Australian property (TAP).

How does Australian income tax for foreginers work?

Taxes for expats in Australia are calculated by subtracting deductible expenses and losses from the assessable income of the taxpayer.

Expatriate tax advice on employment income

Salary, wages, allowances and most cash compensation is included in the employee's assessable income in the year of receipt. Most noncash employment benefits received by an employee are subject to Fringe Benefits Tax (FBT), payable by the employer.

The Australian tax financial year runs from 1 July to 30 June of the following year. For example, the 2023/2024 financial year is 1 July 2023 through to 30 June 2024 and the 2024/25 tax year will run from 1 July 2024 to 30 June 2025.

Self-employment and business income

The taxable income from self-employment or from a business is subject to Australian tax. Each partner in a partnership is taxed on his or her share of the partnership's taxable income.

Directors' fees

Directors' fees are included in assessable income as personal earnings and are taxed in the year of receipt.

Dividends and investment income

The assessable income of resident shareholders includes all dividends received. Franked dividends (that is, dividends paid from taxed corporate profits) paid by Australian corporations are grossed up for the underlying corporate taxes paid. The shareholders may claim the underlying corporate tax as a credit in their personal tax return.

Dividends from Australian sources that are paid to non-residents are generally subject to a final withholding tax of 30% (or 15% under applicable treaties) on the unfranked portion (that is, the portion paid from untaxed corporate profits).

Foreign-source dividends are included in the assessable income of Australian tax residents. If tax was paid in the foreign country, a foreign income tax offset (broadly equal to the lower of the foreign tax paid or the amount of the Australian tax payable) is allowed.

Temporary residents are not assessable on foreign source investment income and gains from non-taxable Australian property.

Interest, royalties and rental income

Interest, royalties and rental income derived by tax residents are included in assessable income with a deduction allowed for applicable expenses.

If tax is paid in the foreign country on the foreign rental income, the resident may claim a foreign income tax offset. If the foreign investment results in a tax loss (that is, deductible expenses exceed assessable income), the tax loss can be offset against all Australian assessable income.

Temporary residents are not assessable on foreign investment income and, consequently, may not offset foreign expenses or losses against other assessable Australian income.

Interest paid by a tax resident to a non-resident lender is subject to a final withholding tax of 10%. Interest paid by a temporary resident to a non-resident lender (for example, an overseas mortgagee) is exempt from the interest withholding tax. Royalties paid to non-residents are generally subject to a final withholding tax of 30% (or 10% to 15% under applicable treaties).

2024/2025 income tax rates for residents

The above rates do not include Medicare Levy of 2%.

*You can earn up to $22,575 before any income tax is payable, when taking into account the Low Income Tax Offset (LITO).

If your taxable income is below a certain amount, you do not pay the 2% Medicare levy, and if your taxable income is above this lower threshold but within a lower range but below an upper threshold, you may a portion of the usual Medicare levy.

The $18,200 tax-free threshold is reduced if the taxpayer spends fewer than 12 months in Australia in the year of arrival or departure.

Income tax for the 2024/5 tax years is levied on non-residents at the following rates:

Expat tax advice on residency

In general, a resident is defined as a person who resides in Australia according to the ordinary meaning of the word, and includes a person who meets either one of the following conditions:

• They are domiciled in Australia, unless the tax authority is satisfied that the person's permanent place of abode is outside Australia.
• They are actually present in Australia continuously or intermittently for more than half of the tax year, unless the tax authority is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to reside in Australia.

The residence tests can be met relatively easily. For example, a person who is in Australia for employment purposes for as little as 6 months may be considered resident in Australia for tax purposes.

A non-resident is a person who does not satisfy any of the above tests.

A temporary resident refers to an individual who satisfies the following conditions:

The individual must be working in Australia under a temporary resident visa.

• The individual must not be a resident of Australia for social security purposes (this covers Australian citizens, permanent residents, special visa categories such as refugees and certain New Zealand citizens).
• The individual's spouse (legal or de facto) and any other dependents must not be a resident of Australia for social security purposes.

No time limit applies to the temporary resident status. If an individual applies for Australian permanent residency, temporary resident status ends on the date on which permanent residency is granted and the individual is taxable as a tax resident (that is, taxable on worldwide income without any of the aforementioned concessions and exemptions) thereafter.

Do I have to pay capital gains tax?

Residents (but not temporary residents) are taxable on their worldwide income, including gains realised on the sale of capital assets. Capital assets include real property and personal property, regardless of whether they are used in a trade or business, and shares acquired for personal investment.

For an asset held at least 12 months (not including the dates of purchase and sale), generally, only 50% of the capital gain resulting from the disposal is subject to tax.

Assets acquired before 19 September 1985 are generally exempt from CGT. In general, any gain (or loss) derived from the sale of an individual's principal residence is ignored for CGT purposes. However, special tax rules may apply if the principal residence has been used to generate rental income.

Capital losses in excess of current year capital gains (before the 50% discount is applied, if applicable) are not deductible against other income, but may be carried forward to be offset against future capital gains.

Non-residents and temporary residents are taxable only on gains arising from disposals of taxable Australian property (TAP).

The following assets are considered to be TAP:

• Australian real property
• An indirect interest in Australian real property
• A business asset of a permanent establishment in Australia
• An option or right to acquire any of the CGT assets covered by the first 3 items above
• A CGT asset that is deemed to be TAP as a result of the taxpayer making an election to disregard any deemed gain or loss arising on leaving Australia and becoming a tax non-resident of Australia

Effective from 8 May 2012, the 50% CGT discount no longer applies to temporary residents and non-residents of Australia. Expats who derive a capital gain after 8 May 2012 and are considered either a non-resident or temporary resident at any time on or after that date now have a reduced ability to claim the 50% discount.

If the individual undertakes a market valuation of the asset as of 8 May 2012, the portion of the gain that accrued before 9 May 2012 may still be eligible for the full CGT discount.

Anti-avoidance measures ensure that non-residents and temporary residents continue to be taxable on disposals of interests in companies whose balance sheets are largely comprised of real property assets, including mining interests.

Australian residents who are not temporary residents just before breaking residence are subject to a CGT charge on the deemed disposal of all assets held at the date of breaking residence that are not TAP. The taxpayer may elect that this deemed disposal charge not apply. However, such an election deems the asset to be TAP until residence is resumed or the asset is disposed of (even if the asset would not otherwise be TAP). As a result, a CGT charge is imposed if the assets are disposed of while the individual is non-resident.

Temporary residents are generally exempt from tax on gains derived from assets that are not TAP.

Medicare levy

A Medicare Levy of 2% of taxable income is payable by resident expats for health services (provided that they qualify for Medicare services).

This is the only levy imposed in Australia that is equivalent to a social security levy. An exemption from the Medicare Levy may apply if the individual is from a country that has not entered into a Reciprocal Health Care Agreement with Australia.

No ceiling applies to the amount of income subject to the levy. However, relief is provided for certain low-income earners. High-income resident taxpayers who do not have adequate private health insurance may be subject to an additional 1% to 1.5% Medicare Levy surcharge. High-income expat taxpayers whose hospital insurance carries an excess payment of more than AUD750 for single expats or AUD1,500 for couples or families are also subject to the Medicare Levy surcharge.

Taxes for expats in Australia: double tax relief and tax treaties

An offset is available for payments of foreign tax that are similar to the Australian income tax payable on the same income.

Both Australian and foreign resident expat taxpayers may claim a tax offset (equal to the lower of an equivalent foreign tax paid or the amount of the Australian tax payable) for an amount included in the taxpayer's assessable income on which they have paid foreign income tax.

Excess foreign tax offsets may not be carried forward.

Australia has entered into double tax treaties with over 45 countries.

Australian tax and Superannuation Pensions

Australia has a complex retirement system which incorporates a compulsory superannuation system for all employees in Australia.

In brief, all employees are generally required to contribute 11.5% (current rate) of their earnings to their superannuation fund. This is compulsory (known as superannuation guarantee) and employers make these contributions on an employee’s behalf.

Superannuation contributions under the compulsory superannuation guarantee system are not subject to marginal income tax rates but are subject to 15% contributions tax (additional tax applies to high-income earners) within the superannuation fund.

As these contributions are not subject to income tax, it is tax-effective to use the superannuation system as a tax planning tool. Concessional contributions (i.e. pre-tax or tax-deductible contributions) of up to $30,000 (current cap) can be made each year. Additional concessional contributions and non-concessional (after-tax) contributions can be made under certain circumstances.

Earnings within superannuation are then taxed at a concessional rate (i.e. 15% for income and 10% for discounted capital gains). Pensions (up to a limit) can then be accessed tax-free upon retirement. As with most retirement systems around the world, the Australian superannuation system has strict preservation rules. Generally, the earliest an individual can access their superannuation is when they are 60 years of age.

Given the compulsory nature of superannuation for all employees in Australia, it is important for expats living and working in Australia to have some understanding of the system.

Next step: Speak to an Australian tax specialist

It is possible to manage your Australian tax situation yourself, however it isn't straightforward and given the complexities associated with international taxes, the cost of making a mistake will be much greater than seeking help from an experienced Australian tax specialist.

When you request an introduction to one of our trusted Australian tax partners, you will also receive an initial free consultation where you will be able to ask basic questions and get an idea of your situation and decide whether you wish to proceed with formal, paid services.

All of our partners are fully qualified and experienced in assisting foreigners living in Australia, Australian expats living abroad as well as people who have connections to Australia whether they still live there or not.

Speak to a trusted Australian tax specialist >