I get more and more questions about Australia digital nomad tax.
In this article, I’ll provide you with some answers regarding tax residency and taxes in Australia.
Tax Residency Rules in Australia
Let’s start with the tax residency rules in Australia.
There are various ways to qualify as an Australian tax resident. We’ll dive deeper into each of them and see how those can apply to you.
183-Day Test
The 183-day test is rather clear from its name itself. The test looks at the amount of days you spend in Australia.
Do you spend more than 183 days in the country during an income year (1 July – 30 June)? Then you are a tax resident.
For most digital nomads, this test should not pose any issue. For the simple reason that they will spend most of their time traveling to different places.
Ordinary Concepts Test
You pass the ordinary concepts test if you reside in Australia. Australian tax law doesn’t have a definition of ‘residing’.
However, the Australian Tax Office (ATO) interprets it as  ‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place’.
In order to analyze this, the ATO puts forward some elements they look at:
- period of physical presence in Australia;
- intention or purpose of presence;
- behavior while in Australia;
- family, and business or employment ties;
- maintenance and location of assets, and
- social and living arrangements.
You could say you are already a resident of another country or don’t spend a lot of time in Australia. Unfortunately, this is not sufficient to escape tax residency on this basis.
Although this test is open for discussion, for most digital nomads it is possible to escape taxation on this basis.
Domicile Test
The most important test for digital nomads is the domicile test.
You will remain a Australian tax resident under this test unless you can show you have your permanent place of abode outside of Australia.
To obtain domicile outside of Australia, you need to have actual physical presence in that place.
Furthermore, you should have the intention to make it your home indefinitely. This condition is the main concern for digital nomads.
Many nomads don’t have a fixed place where they spend most of time. Based on this, Australia can still consider you as an Australian tax resident. This is also explicitly stated in the guidelines of the ATO:
If you move from country to country such that it cannot be said that you are living in a particular country in a permanent way, your permanent place of abode will not be overseas and you will remain a resident of Australia. This is regardless of whether or not you have any dwellings in Australia, or whether Australia more generally can be described as your place of abode.
Commonwealth Superannuation Fund Test
Just like the 183-day test, this test will likely not apply to most digital nomads.
Namely, this test applies to employees from the Australian Government who pay contributions to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS).
Income Tax Treatment: Resident vs Non-Resident
If you qualify as an Australian tax resident you have to pay taxes on your worldwide income.
So, even if you work remote for a foreign employer or foreign clients, all of this income needs to be reported in Australia. And, the normal tax rules will apply to it.
However, if you can end your tax residency in Australia the situation changes. In this case you become a non-resident.
Yet, that doesn’t mean all of your tax obligations end there. If you still receive income from Australian source (e.g. rental income) you still need to pay taxes on this income in Australia.
Nevertheless, in this case you only need to pay Australian taxes on the income from Australian source.
Deductions and Expenses for Remote Work
If you want to deduct certain expenses for working remotely from your taxes, the expenses need to meet certain requirements:
- Used to fulfill job duties
- They must be additional costs and not just costs you would also incurr otherwise
- You need to keep records of the expenses
- If you work as an employee, you can only deduct the expenses if they aren’t reimbursed by your employer
Therefore, you always need to consider if any expense you make is necessary for your business or just a luxury.
What Australian Digital Nomads Should Know About their Remote Income
If Australia still deems you as a tax resident, you will have to file and pay taxes in Australia on your worldwide income. This includes any remote income!
We refer to the criteria set out before regarding Australian tax residency.
In addition, you can also take a test on the website of the Australian Tax Office. However, please note that this test is not binding but it gives you a good first indication.
Depending on your lifestyle and how much time you spend in one place, other countries could also still see you as tax resident in their country. This applies even if you already pay taxes in Australia!
Recent Rulings & Changes for Remote Workers
The ATO published a tax ruling on 7 June 2023 which is particularly important for digital nomads.
The ruling gives additional guidelines on tax residency for individuals.
I took the following example from the ruling:
Stuart was born and raised in Australia. He separates from his spouse and moves out of the family home, leaving his 4 children in the care of his former spouse. Stuart meets and forms a relationship with a Chinese national. He visits her in China on many occasions. In time, he resigns from his employment in Australia and moves to Nanning, China. There he takes up a 3-month short-term employment contract and advance his new relationship. When this contract ends, Stuart takes up the following further fixed term, short to medium-term, employment contracts in various countries in Asia and moves apartments under the arrangements as outlined, to fulfill these roles:
- Vientiane, Laos – 5 months – living in employer-provided furnished accommodation
- Bangkok, Thailand – 18 months – living in a furnished apartment Stuart rents on a fixed 12-month term and then on a month-to-month basis, and
- Phom Penh, Cambodia – 9 months – living in a furnished apartment Stuart rents on an initial 6-month term and then on a month-to-month basis.
Stuart does not form any social or other ongoing connections in the places in which he undertakes the contracts. Once he leaves a country, he does not return other than for work. Sometimes his partner visits him. Sometimes he visits her or spends time with her in the one to 2-months break he had between contracts.
From time to time, Stuart returns to Australia. Usually for his children’s birthdays or special events. On average, these visits are for a length of a week. When in Australia, he stays with his parents or friends as he no longer has any assets in Australia.
He is not considered to be a resident of Australia under the ordinary concepts test. He is not residing here and intended to leave Australia indefinitely. Stuart has not maintained a connection with Australia consistent with residing here. He has worked and lived outside of Australia for most of the income year.
Stuart is domiciled in Australia so he will still be a resident of Australia. Unless his permanent place of abode is outside Australia. Stuart has abandoned his residency in Australia, but he has not established his permanent place of abode outside of Australia. This is evidenced by his shifting between a number of countries for employment purposes. Therefore, he is an Australian resident under the domicile test.
He is not in Australia for 183 days in any income year since his original departure so the 183-day test does not apply.
This shows that if you don’t have fixed place outside of Australia where you live, you might end up still owing taxes in Australia.
How to Structure Your Tax Position as a Digital Nomad with Australian Links
All the above shows that digital nomads from Australia need to be even more careful than most people.
Basically, there is no escaping taxes in Australia if you don’t have a permanent home base abroad. Consequently, you will need to pay Australian taxes.
You should also know that another country could still see you as a tax resident there as well. Accordingly, you might end up paying taxes twice if that other country does not have a double tax treaty with Australia.
Luckily, Australia has double tax treaties with some countries that help you to limit your tax burden. If such a double tax treaty is in place, only one of the countries can claim you as a tax resident. Consequently, the other country needs to back off.
Reach out if you need assistane tailored to your specific situation!
FAQ about Taxes for Australian Digital Nomads
Let’s now have a look at some Frequently Asked Questions about Australia digital nomad tax.
Do I Pay Australian Tax if I Live Abroad and Work Remotely?
You will pay Australian tax if you live abroad and work remotely if you still qualify as an Australian tax resident.
Therefore, it’s important to assess your specific situation to make sure you don’t have to keep paying taxes to Australia.
What Happens if I Spend More Than 183 Days in Australia?
If you spend more than 183 days in Australia during the tax year you will automatically become an Australian tax resident.
Consequently, you’ll have to declare your worldwide income in Australia.
If you are also still a tax resident in another country, you could potentially use a double tax treaty to avoid double taxation.
Are Remote Work Expenses Deductible?
Remote work expenses are deductible if you can proof they are directly related to your job.
Trying to deduct private expenses as a business expense can be tricky and result in a tax audit.
Will My Foreign Income Be Taxed in Australia?
Your foreign income will be taxed in Australia if you qualify as an Australian tax resident as you need to declare your worldwide income.
Nevertheless, depending on the country of origin of the income, the double tax treaty might provide in some sort of relief here.