No Tax-Free Threshold, and Withholding on the Rest
A foreign resident for tax purposes is taxed on Australian-sourced income only, but from the first dollar: there is no tax-free threshold and the first rate band starts higher than a resident's. Interest and unfranked dividends are subject to final withholding; rent and capital gains on Australian property are assessed in the ordinary way.
- The answer: Foreign residents are taxed on Australian-sourced income with no tax-free threshold, at the foreign resident rate scale.
- The trap: Residency for tax is not the same as citizenship, immigration status or where you spend most of the year. It is decided on statutory tests and can be genuinely unclear.
- The recommendation: Establish the residency position before leaving rather than after the first return is due. It changes the treatment of every income stream you hold.
Where the AI summary above gets this wrong
"If you live overseas you do not pay Australian tax."
That's surface-true. Here's what it misses:
- Australian-sourced income remains taxable — Rent from an Australian property, Australian business income and capital gains on Australian real property are all assessable to a foreign resident.
- There is no tax-free threshold — A foreign resident is taxed from the first dollar at a rate that begins where a resident's middle bracket does, so a modest Australian income can be taxed more heavily than it would be for a resident.
01 What is taxed
A foreign resident is assessed on income from Australian sources. That includes net rent from Australian property, income from an Australian business, employment income for work performed here, and capital gains on taxable Australian property.
Interest and unfranked dividends paid to a foreign resident are generally subject to final withholding tax at rates set by legislation and reduced by any applicable tax treaty. Final withholding means there is nothing further to pay and nothing to declare.
Franked dividends carry a different treatment: the franked portion is generally exempt from further Australian tax and the credits are not refundable to a foreign resident, which removes the advantage described in the franking credits post.
02 The rate scale
The foreign resident scale has no tax-free threshold and no low income tax offset. The first band starts at the rate a resident reaches only in the middle of their income, which is the single largest difference between the two positions.
The Medicare levy does not apply to a foreign resident, which offsets part of that difference. Nor does the Medicare levy surcharge, since neither Medicare nor the surcharge applies to someone outside the system.
For someone with modest Australian income — a single rental property, say — the loss of the threshold usually outweighs the saved levy by a substantial margin. The worked example puts both scales against the same income.
Shows: the tax on the same Australian income under the resident and foreign resident scales, using the thresholds and rates you supply. Ignores: the full progressive scale beyond the first band, the Medicare levy, offsets, withholding on interest and dividends, and any tax treaty.
03 What residency actually turns on
Tax residency is determined by statutory tests rather than by citizenship, visa status or a simple day count. The ordinary concepts test looks at where you reside in the ordinary sense; the domicile test asks whether you have a permanent place of abode outside Australia; and there are further tests for people coming here.
That makes the position genuinely uncertain for people with continuing Australian ties — a house kept, family here, an intention to return. Those cases turn on facts rather than on a rule, and they have been litigated repeatedly.
The consequences of getting it wrong run in both directions and are expensive. Establishing the position before departure, with advice where the facts are mixed, is considerably cheaper than resolving it against an amended assessment years later.
Residency is the fact that changes everything and the one people settle last. It is not about your passport or where you sleep most nights; it is a statutory test that has produced decades of litigation. If your ties to Australia are mixed — a house here, family here, an open return date — that is exactly the case worth getting advice on before you go.
FAQ
How is my Australian rental and investment income taxed if I become a non-resident?
Rent is assessed in the ordinary way with no tax-free threshold, at the foreign resident rate scale. Interest and unfranked dividends are generally subject to final withholding tax, and franked dividends are largely exempt with no refund of credits.
Do non-residents pay the Medicare levy?
No. Neither the Medicare levy nor the surcharge applies to a foreign resident, which offsets part of the higher rate scale but rarely all of it.
How is tax residency decided?
By statutory tests rather than citizenship or visa status — where you reside in the ordinary sense, and whether you have a permanent place of abode outside Australia. Cases with continuing Australian ties turn on facts and have been litigated repeatedly.
Sources
Regulator references
- ATO — Tax rates: foreign resident · Australian Taxation Office · 2026The foreign-resident rate scale, which carries no tax-free threshold.Last verified: 2026-09-07
- ATO — Tax rates: Australian resident · Australian Taxation Office · 2026The resident marginal rate scale by income year, excluding the Medicare levy.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.