Residence and Source of Income


Before we calculate or acknowledge the assessable income of the taxpayer, we need to understand two key concepts of taxation

  • Residence
  • Source of Income

These concepts are significant because Australian resident is taxed on income from All sources, whereas non-residents are only taxed on income from Australian based sources.


Residents & Non residents for tax purposes


  1. Residents
  • Eligible for tax free threshold & tax offset
  • Pay Medicare levy once their taxable income across threshold amount. They can be Medicare levy surcharge if they don’t have private health insurance
  • Residents are taxed on net capital gain. They can also claim the CGT discount once they held the asset for more than 12 months.
  • Need to lodge an income tax return or pay any tax in advance under PAYG withholding or PAYG installment


  1. Non residents
  • Not eligible for tax free threshold & tax offset. They pay income tax at special rates.
  • They are not able to claim Medicare benefits. Therefore, they don’t pay the Medicare levy on taxable income.
  • Non residents are ineligible for CGT discount after 8th May 2012
  • PAYG withholding may apply to Australian sourced income. Non-residents are not required to lodge a tax return if withholding tax has been deducted from Australian source income.


If the resident moves overseas on a permanent basis, then he will only be able to claim a portion of the tax-free threshold.


Test to be a determine taxpayer is resident or non-resident


If the resident does not satisfy any of the below four tests, then a taxpayer will be classified as non resident.


  • Resides Test: Factors apply are Intention or purpose of presence, family or business ties in Australia, Maintenance and location of assets, social & living arrangement and physical presence in Australia
  • Domicile Test: If the taxpayer is domiciled in Australia then the taxpayer is an Australian resident for tax purposes. Domicile can be by origin, by choice or by operation of law.
  • 183 day Test: This test applies to a taxpayer who is coming to Australia not leaving. If the person present for more than half of the income tax year, then the taxpayer is resident.
  • Taxpayer is a resident if the person is a member of a commonwealth Government superannuation scheme.


If you have any question about assessable income or require assistance in your bookkeeping requirements, then please do not hesitate to call us on (03)93107871