Australian Tax Residency and Foreign Income: The Four Tests, CRS and the Traps That Catch People Out

Residency is the switch that decides how much of your income Australia can tax, and it is decided under tax law alone. Home Affairs does not get a vote. Every year people arrive on a temporary visa and quietly assume the rental income back home is none of the ATO’s business, or leave the country and assume they stopped being a resident the day the plane took off. Both assumptions cost money, and both are usually discovered by letter. Here is how Australian tax residency is actually worked out, what it means for foreign income, and where the expensive misreadings sit.

1. The four tests the ATO applies

There are four statutory tests, and satisfying any one of them makes you a resident for tax purposes. The ATO states plainly that it does not use immigration rules: you can be a tax resident without citizenship or permanent residency, and you can hold an Australian visa without being one.

1. The resides test. The primary test, and the one that decides most cases. It looks at whether you actually live here: where you physically are, your intention and purpose in coming, where your family is, your employment or business ties, where your assets are held, and your social and living arrangements. Pass this one and the other three never come up.
2. The domicile test. If your domicile is in Australia you are a resident, unless the ATO is satisfied your permanent place of abode is outside Australia. This is the test that governs people who leave.
3. The 183-day test. Present in Australia for more than half the income year, continuously or not, and you are a resident — unless you can show your usual place of abode is overseas and you have no intention of taking up residence here.
4. The Commonwealth superannuation fund test. Applies to Australian government employees posted overseas who remain contributing members of the CSS or PSS (not the PSSAP). They, their spouse and their children under 16 are residents regardless of where they live.

Note how much weight sits on the first test. It has no day threshold at all. Arrive in March, bring the family over, sign a twelve-month lease, enrol the children in school and open a local account, and you can be a resident well before day 183. The reverse also happens: people who spend 200 days here have been held to be foreign residents. What matters is where the centre of your life sits, not the number on the calendar.

2. Being a resident does not always mean declaring foreign income

Between residency and a worldwide tax return sits a second status: temporary resident. You generally qualify if you hold a temporary visa and neither you nor your spouse is an Australian resident within the meaning of the Social Security Act 1991. Most 482, 485 and 500 visa holders fall into this group.

Temporary residents are exempt from Australian tax on most foreign-source income and on capital gains from foreign assets, and do not declare them. There is one exception that catches people repeatedly: employment income for work performed overseas while a temporary resident remains assessable. Salary from an employer back home, or fees for work done on a trip abroad, sit inside that exception. Foreign rent and bank interest do not.

Status	Australian-sourced income	Foreign income	Tax-free threshold & Medicare
Australian tax resident (not a temporary resident)	Fully assessable	Worldwide income is assessable: foreign salary, rent, interest, dividends and capital gains. Tax already paid overseas may be claimed as a foreign income tax offset (FITO)	$18,200 tax-free threshold; 2% Medicare levy applies
Temporary resident (temporary visa, e.g. 482 / 485 / 500)	Fully assessable	Most foreign income and foreign capital gains are exempt. The exception: employment income earned for work performed overseas while a temporary resident is still assessable	Threshold applies; a Medicare levy exemption can be claimed if eligible
Foreign resident (not an Australian tax resident)	Australian-sourced income only; interest, dividends and royalties are usually covered by withholding at source	Not assessable in Australia	No tax-free threshold — 30% from the first dollar in 2025–26; no Medicare levy

The status also changes the rate. For 2025–26 a resident has an $18,200 tax-free threshold and pays 16% from $18,201 to $45,000 (that bracket drops to 15% in 2026–27). A foreign resident has no threshold and pays 30% from the first dollar up to $135,000. That gap is why the year you leave is worth getting right.

3. CRS: your overseas accounts arrived before you did

Australia has taken part in the Common Reporting Standard since 2018, exchanging financial account information automatically with more than a hundred tax jurisdictions. Mainland China and Hong Kong are both in the network. The mechanism is unremarkable: your bank, broker or insurer overseas asks you to self-certify your country of tax residence, and once you have written Australia on that form, the account balance, interest, dividends and disposal proceeds travel to the ATO through the local revenue authority.

Which produces the scenario we now see several times a year. Someone has never declared the rental income or investment returns they hold overseas, and a letter arrives asking them to confirm an offshore account. That letter is not an audit. It does mean the other side already has the data, and waiting is the worst available option — the ATO has always treated voluntary disclosure far more gently than something it had to find.

4. Five misreadings that cost money

1. “Under 183 days, so not a resident.” The resides test comes first and counts no days. This is the single most common error.
2. “I am on a temporary visa, so I am not an Australian tax resident.” Two different questions. Temporary visa holders are frequently tax residents and temporary residents at the same time: Australian income is declared in full, while foreign income is exempt under the rules above.
3. “I already paid tax on it overseas, so it does not go on the Australian return.” If you are a resident and not a temporary resident, worldwide income is declared and the foreign tax is claimed as a FITO. The offset is capped, so where the foreign rate exceeds the Australian one the excess is not refunded — and the offset only exists if you lodge. Leaving the income off is not a shortcut, it is an omission.
4. “I left, so I am automatically a foreign resident.” The domicile test exists for exactly this. A house kept, family still here and an open-ended intention to return will often mean your permanent place of abode is still Australia. Ceasing residency also triggers CGT event I1, which treats your foreign assets as disposed of on departure — unless you elect to defer the gain until you actually sell.
5. “A part-year resident still gets the full $18,200.” No. The threshold is pro-rated by the number of months you were a resident, and the base amount is well below the full figure. In an arrival or departure year, calculate this before anything else.

5. The year you arrive, and the year you leave

The changeover years are where the mistakes cluster, and several issues have to be looked at together. The tax-free threshold is apportioned by month. Departure triggers CGT event I1 on foreign assets, with a choice between deemed disposal on the day you cease residency and deferral until an actual sale — the two paths produce different outcomes and the sums should be done before you choose. The main residence exemption is generally unavailable to someone who is a foreign resident at the time of disposal, with only narrow life-events exceptions. And a Medicare levy exemption cannot be claimed on the return without a Medicare Entitlement Statement.

One more thing worth saying. The 2021–22 Federal Budget proposed replacing the residency rules with a bright-line 183-day primary test plus a secondary factor test. It has been discussed for years and has still not been legislated. The four tests above remain the law. Do not plan your departure date around a measure that only ever existed in a press release.