Backpackers & residency for tax purposes
Backpackers are usually not a resident of Australia for taxation purposes under the ordinary concepts test (TR 98/17), but they maybe considered a resident under the 183 day test.
What does this mean if you are a backpacker on a short term working holiday visa?
You gain access to lower tax rates, and
You can earn up to $18,200 and pay no tax.
183 Day Test
Under the 183 day, if an individual was actually present in Australia, either continuously or intermittently, for more than 183 days in a tax year (1 July to 30 Jun) they will be deemed a resident for tax purposes, unless it can be established that, the individual’s usual place of abode is outside Australia and they have no intention to take up residence here.
Applying the 183 day test
Your presence in Australia need not be continuous for the purposes of the 183 day test. All the days you are physically present in Australia during the income year will be counted. It is important to note that the 183 day test applies in relation to the year of income, not the calendar year.
Tax implications of residency
If you're a foreign resident for tax purposes:
You declare on your tax return any income you earned in Australia, including employment income, rental income, Australian pensions and annuities, and capital gains on Australian assets. Don't declare foreign income on your Australia tax return.
If you're an Australian resident for tax purposes:
You generally have to declare all income you earned both in Australia and internationally on your tax return.
However, if you have a temporary visa you're a temporary resident – this means most of your foreign income is not taxed in Australia and you don't declare it on your Australian tax return. You only declare income you derive in Australia, plus any income you earn from employment performed overseas for short periods while you are a temporary resident of Australia.
Some Examples from the ATO website
Kate – a visitor, working and living in one place
Kate is from Ireland and entered Australia on a working holiday visa in July 2004. She intended to, and did in fact, stay in Sydney for most of the twelve months she was in Australia. Kate is close to her brother who has migrated to Australia and lives in Sydney.
Kate had one ten day holiday travelling up the east coast just after arriving in Sydney, and another two week holiday at Byron Bay in January 2005. She spent the last three weeks of her stay in Australia travelling around Western Australia.
Kate lived in share accommodation at one location for four weeks in Sydney and share accommodation at another location in Sydney for ten months. Kate’s name was put on the lease and she made a part contribution to the bond. She also purchased her bed, other bedroom furniture and a fridge.
Kate worked in coffee shops and restaurants throughout the whole period she was in Sydney. Kate joined a library, the Irish club and a water polo club while staying in Sydney.
Outcome: why is Kate an Australian resident?
Kate’s intention was to reside and live in one location. Kate’s behaviour and abode for 11 out of the 12 months exhibited the attributes of a place of residence as contrasted with overnight, weekly, monthly or transitory accommodation of a traveller. By living and working in close proximity to her brother and establishing links in the community by joining the local library and membership of two local clubs, Kate demonstrated her family and social ties.
Kate’s behaviour during the time spent in Australia reflects a degree of continuity, routine or habit that is consistent with residing here.
Janine – combining work and travel
Janine is a British national who has longed to spend twelve months ‘down under’. After saving for years, she takes twelve months leave from her work and departs for Australia on her twenty-fourth birthday. Although she travels with considerable savings, her intention is to spend at least part of her time working. She has obtained a working holiday visa enabling her to work for no more than six months with one employer.
Through a contact in Australia, she is assured of work in Perth for the first three months. After that period, she decides to travel to the east coast via Adelaide. She spends a month in Adelaide where she works for two weeks and continues her journey to Melbourne.
Once there, she meets some friends from back home. After working for a further three months, she decides to spend the balance of her time in Melbourne and uses her savings for living expenses. To keep costs down, she leases a house with two other friends. At the end of her twelve months in Australia, she returns to the United Kingdom and resumes living in her house there, which she had been renting out while in Australia.
Outcome: why is Janine a foreign resident?
Although Janine obtains work, by travelling from place to place she has not established a pattern of habitual behaviour, even though she is physically present in Australia for twelve months and she co-leases a house. Janine’s main purpose for being here is to have a holiday and she is merely supplementing her savings by working. Janine also fails to meet the 183 day test because she had a usual place of abode outside Australia and did not intend taking up residence in Australia.
Please don’t hesitate to contact us if you need any help determining your residency status.
This information is not to be relied upon without consulting your tax agent.