Are you an Indian living in Australia? Confused about your residential status? Here’s a quick guide.
Introduction
The first thing you will need to consider is your tax residency i.e. whether you are an Australian tax resident or an Indian tax resident. Tax residency rules in India and Australia differ based on whether an individual is a temporary resident or a permanent resident. Australia determines residency primarily based on physical presence and intent to reside, while India uses a combination of days spent in India and income earned or controlled from India.
Australia’s Tax Residency Rules
There are four tests to determine your Australian tax residency (i.e. ordinary concepts / resides test, 183-day test, domicile test and Commonwealth superannuation test).
Based on these tests, Australia classifies individuals as foreign residents or Australian residents for tax purposes.: Further, an individual classified as an Australian resident for Australian tax purposes that is in Australia on a temporary visa and is not an Australian resident under the Social Security Act 1991 or a spouse of an Australian resident under the Social Security Act 1991 would generally be classified as a temporary resident for Australian tax purposes.
- Foreign Residents: Non-residents need to declare any income earned in Australia, including employment income, rental income, and capital gains on direct or indirect interests in Australian real property. They do not have a tax-free threshold and are exempt from the Medicare levy.
- Temporary Residents: They only declare Australian-sourced income and employment income in relation to their Australian employment that is paid from offshore.
- Australian Residents that are not temporary residents: Taxed on both Australian and worldwide income, including capital gains on foreign property. They are subject to resident marginal tax rates.
India’s Tax Residency Rules
India determines tax residency based on the number of days an individual spends in the country:
- Resident: An individual is considered as an Indian tax resident if:
- they stay in India for 182 days or more in a financial year or
- stay in India for 60 days or more and more than 365 days over a period of previous 4 years.
- Non-Resident: Individuals who do not meet the residency criteria are taxed only on income earned in India.
- Resident but Not Ordinarily Resident (RNOR): You will be considered as a RNOR for a particular financial year if:
- You spent fewer than 729 days in India over the past seven years or were non-residents in nine out of the last ten financial years.
- you are an Indian citizen / person of Indian origin, and spent more than 120 days but less than 182 days, having your India sourced income exceeding a particular threshold.
- RNORs are taxed only on Indian-sourced income.
Generally speaking, if you have recently arrived in Australia on a temporary visa, you are taxed only on Australian sourced income while you remain on the temporary visa, whereas India will tax you on your worldwide income. India will allow a tax credit for taxes paid in Australia.
The situation requires evaluation if you arrive in Australia on a permanent residency visa. The 30 June financial year end in Australia differs from the 31 December year end in India. You may be considered as a resident in both the countries for the same financial year making such determination a complex issue. In that scenario, you may need to consider the Australia-India Double Tax Agreement to evaluate your particular facts and circumstances. The Australia-India Double Tax Agreement contains tiebreaker provisions to deal with the position where an individual is tax resident of both Australia and India.
Next steps
- Determination of tax residency is the first step in tax planning. At Nexia Canberra, we simplify this complex issue by offering services to help determine your tax residency status, understand the impact of the India-Australia Double Tax Agreement to prevent double taxation, and help you meet your tax reporting requirements.
- Contact our team today for expert guidance on your tax residency considerations and potential tax planning opportunities.
