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Quick Summary:

• Four statutory tests determine tax residency: resides, domicile, 183-day, superannuation.
  
• Temporary residents are often exempt from tax on foreign income and non-Australian assets.
  
• Australian-sourced income is always taxable, including employment and certain investments.
  
• Capital gains tax (CGT) rules differ for temporary residents; non-Australian assets are usually exempt.
  
• Keep accurate records of income, assets, and residency status, and consult ITP Accounting Professionals if in doubt.
  

Picture this: you’ve just moved to Australia on a temporary visa. You’ve rented an apartment, opened a bank account, and started a new job. Then tax season arrives, and suddenly you’re asking: Do I file an Australian tax return? Do I pay tax on my overseas income? What about my investments back home?

Here’s the catch: Australian tax residency doesn’t depend on citizenship or permanent visas. Instead, the Australian Taxation Office (ATO) uses legal tests to determine whether you’re a tax resident. For temporary residents, these rules can significantly affect how much tax you pay and on what income.

This guide breaks it down for students, professionals, and business owners. By the end, you’ll understand your obligations, exemptions, and how to navigate 2025 rules confidently.

How Australia Decides Residency: The Four Tests

The ATO applies four tests, and passing any one may classify you as a resident for tax purposes.

What Are the Tax Residency Tests in 2025?

1. The Resides Test

This test looks at where you “live” in practice. Consider:

• Physical presence
  
• Employment or business ties
  
• Family and social connections
  
• Housing arrangements
  

Client Case Study: Relocating to Melbourne on a Two-Year Contract:

When Daniel accepted a two-year work contract in Melbourne, he expected challenges, new city, new role, new routines. What he didn’t expect was how his move would affect his Australian tax residency.

To settle in quickly, Daniel rented a long-term apartment near his workplace and opened local bank accounts for salary deposits and everyday expenses. Within weeks, he was living much like any other Melbourne resident, commuting to work, paying bills, and integrating into the community.

When tax time came, Daniel wasn’t sure whether his visa status would prevent him from being treated as an Australian tax resident. But under the Ordinary Concepts Test, the ATO looks at how someone actually lives in Australia.

Daniel:

• committed to a two-year stay,
  
• secured long-term accommodation, and
  
• established financial and day-to-day ties (like local banking), he was considered to have made Australia his home for the period of his contract.

Outcome: Despite holding a temporary visa, Daniel qualified as an Australian tax resident, allowing him access to resident tax rates and relevant tax offsets.This case highlights how your actions and lifestyle, not just your visa, can determine your residency status in Australia.

For similar cases, a tax expert from ITP Accounting Professionals can assess your residency position accurately.

2. The Domicile Test

If your permanent home (domicile) is in Australia, and you don’t have a permanent abode elsewhere, you may be a resident even if temporarily overseas.

• Your domicile can be from birth or established by choice.
  
• This is often relevant for professionals who move back and forth between countries.
  

3. The 183-Day Test

If you spend 183 days or more in Australia during a financial year (1 July–30 June), you may be a tax resident.

• Exception: if your usual home is overseas and you have no intention to stay.
  
• Arrival and departure days count.
  

4. The Commonwealth Superannuation Test

Applies if you or your family are contributing members of certain Australian Public Service super funds (CSS/PSS).

• Rare for new arrivals in 2025, but still worth noting.
  

What Tax Residency Means for Temporary Residents

If You Qualify as a Resident, What Are Your Tax Obligations?

As a tax resident (even on a temporary visa), you are generally taxed on:

• Australian-sourced income, including salary, rental income, and investments
  
• Certain capital gains on Australian assets
  

Temporary residents often don’t pay tax on foreign-sourced income or non-Australian assets under Section 768-R of the Income Tax Assessment Act 1997.

Pro Tax Tip: Keep clear records of income by source and date, this helps ensure you don’t over-report and pay tax unnecessarily. An expert at ITP Accounting Professionals can help ensure nothing is over-reported.

Real-Life Scenarios You Might Face

Scenario 1:
Temporary Visa Holder Earning Foreign-Sourced Income

Marta relocates from Spain to Australia on a 2-year Temporary Skills Shortage (TSS) visa after accepting a role with an IT company in Brisbane. She earns $80,000 AUD per year from her Australian employer.

However, she doesn’t fully cut ties with her life overseas. Before moving, Marta built a steady freelance client base in Europe and continued taking on projects after arriving in Australia, earning around 20,000 EUR  (≈ $30,000 AUD) annually.

Naturally, Marta worries she’ll be taxed twice,once in Europe and again in Australia, especially when she sees the large income figures on her invoices.

But here’s the good news:
Because Marta is a temporary resident for Australian tax purposes, only her Australian-sourced income is taxable. This means she does not need to declare her 20,000 EUR freelance income on her Australian tax return.

Her obligations:

• She reports only her $80,000 Australian salary.
  
• Her foreign income remains exempt, saving her from significant tax stress and unnecessary paperwork.
  

This rule makes a huge financial difference for temporary visa holders working globally while living locally.

Scenario 2:
Selling Foreign Shares While a Temporary Resident

Before moving to Australia, John spent years investing in U.S. tech stocks and European index funds. His portfolio steadily grew while he lived abroad.

A year after moving to Australia on a temporary work visa, John decided to sell some of his foreign shares, generating a profit of $50,000. He assumed this capital gain would be taxed in Australia, just like it would be for an Australian resident.

But under Australia’s temporary residency rules, there’s a major advantage:

• Capital gains on non-Australian assets are disregarded.
  
• As long as the shares were not acquired while he was an Australian resident, they do not attract CGT.
  

So John’s $50,000 gain is exempt from Australian tax, saving him thousands. He keeps the profit, free from Australian CGT, and can reinvest or use it however he likes.

This is one of the most financially powerful benefits enjoyed by temporary residents.

Scenario 3:
Buying or Selling Australian Property as Temporary Residents

Sarah and her partner moved to Australia on temporary visas and fell in love with Sydney. After a few months, they decided it was time to put down some roots and consider buying an apartment.

However, unlike foreign income or overseas assets, Australian property is treated differently under tax law.

Here’s what they need to know:

• If they buy property, they may be subject to certain foreign-buyer surcharges, depending on the state and the type of visa they hold.
  
• If they later sell that property, they must pay Capital Gains Tax (CGT) on any profit made, temporary residency does not exempt them from CGT for Australian assets.
  
• Temporary-resident exemptions apply only to foreign-sourced income and non-Australian assets, not Australian investments.
  

Example:
If Sarah and her partner purchase a Sydney apartment for $900,000 and later sell it for $1,050,000, the $150,000 capital gain is taxable, subject to CGT rules.

This scenario highlights a crucial distinction:
Temporary residents enjoy generous exemptions for foreign income and overseas assets, but Australian property is always taxable, regardless of residency status.

If unsure, book a consultation with ITP Accounting Professionals.

How to Maximise Your Tax Efficiency in 2025

• Track Australian vs foreign income meticulously.
  
• Understand CGT treatment of assets when your residency status changes.
  
• Take advantage of temporary-resident exemptions on foreign income and non-Australian assets.
  
• Remember deductions: work-related expenses, rental property costs, and other allowable expenses remain relevant.
  
• Note superannuation updates: from 1 July 2025, employer contributions rise from 11.5% to 12%.
  

Your Next Move: Staying Smart with Tax

Navigating tax residency as a temporary resident can feel overwhelming. To stay compliant and optimise your obligations:

1. Review your visa status, assets, and income sources.
   
2. Maintain detailed records: income, dates, currency, assets’ location.
   
3. Consult ITP Accounting Professionals for guidance, especially if you hold foreign investments or plan to change residency status.
   

FAQs

Do I need to file an Australian tax return as a temporary resident?

If you have Australian-sourced income (salary, rental income, investment income), you likely need to file. Foreign-only income may be exempt, depending on your visa.

Is foreign income taxed while I’m on a temporary visa?

Generally no, Section 768-R exempts foreign-sourced income for temporary residents, except Australian employment income.

What about capital gains from foreign assets?

Gains on non-Australian assets are usually disregarded for CGT purposes while you remain a temporary resident.

What changes when I become a permanent resident?

Standard resident rules apply. Assets are deemed acquired at market value on becoming a resident; foreign and worldwide income is assessable.

Does superannuation affect my residency status?

Not directly, but contributing to an Australian super fund may influence your ties under “resides” or “domicile” tests.

Need Help With Your Residency or Tax Return?

Tax residency rules can get complicated fast, especially when you’re juggling visas, overseas income, or investments.

ITP Accounting Professionals can help you get it right the first time.

• Personalised advice for temporary residents
• Guidance on foreign income, CGT, and residency tests
• Support with tax returns, deductions, and compliance
• Australia-wide offices and online appointments

Book an appointment with an ITP expert today. Find your nearest ITP Accounting Professionals office

More Helpful Articles:

How to Take Money Out of Your Company: 5 Tax-Smart Methods for Australian Directors 2025

Are Sunglasses and Bags Tax-Deductible? The Surprising Truth Every Aussie Should Know

Small Business Tax Changes 2025-26: Complete Guide to Rates, Concessions & Deductions

Just Arrived on a Working Holiday in Australia? Here’s What You Need to Know About the Backpacker Tax

Disclaimer: This blog is for general informational purposes only and does not constitute professional tax advice. Tax law is complex and subject to change. Consult a qualified tax adviser or the ATO for guidance specific to your circumstances.

It’s a common question that pops up every tax season: “Can I claim my sunglasses or work bag as a tax deduction?”

At first glance, these items may seem personal. After all, everyone wears sunglasses or carries a bag. But under certain conditions, the Australian Taxation Office (ATO) does allow deductions for these purchases, provided they’re directly related to earning your income.

This article unpacks the rules, explains who can make these claims legitimately, and highlights how to stay compliant while maximising your potential deductions.

Quick Summary

• Sunglasses are deductible if used primarily to protect against sunlight in outdoor work.
• Work bags can be deductible if used mainly for transporting work-related tools, equipment, or documents.
• Personal or fashion-based use disqualifies most claims.
• Apportion mixed-use items according to work-related percentage.
• Keep detailed records — receipts, logs, and usage notes are crucial.

When Are Sunglasses Tax-Deductible?

The ATO recognises sunglasses as protective equipment when they are used to reduce exposure to sunlight and glare in the course of work duties.

This deduction applies primarily to employees who spend a substantial portion of their day outdoors such as construction workers, delivery drivers, landscapers, farmers, and outdoor event staff.

According to the ATO’s guidelines on protective clothing, these items must be used to protect against risks directly related to your job.

Example 1: The Outdoor Worker

A civil engineer regularly inspects construction sites in direct sunlight and purchases $220 polarised sunglasses.

The cost is fully deductible because the sunnies are protective and necessary for work.

Example 2: The Office-Based Employee

A marketing coordinator buys the same sunglasses but only uses them for commuting to the office.

The expense is not deductible, as travel to and from work is private in nature.

Pro Tax Tip: If your sunglasses serve both professional and personal purposes, you must claim only the work-related portion. The ATO may request substantiation for your apportionment.

When Are Bags Tax-Deductible?

Work bags are claimable when they are used mainly to transport work-related materials or tools such as laptops, client files, or specialised equipment.

The ATO classifies them as “work-related tools or equipment,” provided the primary purpose of the item supports your income-earning activities.

Example 3: The Consultant

A business consultant purchases a $190 briefcase used exclusively to carry a laptop and business contracts.

The full cost is deductible as the bag is used solely for work purposes.

Example 4: The Graphic Designer

A freelancer buys a $160 backpack and uses it 70% for work (to carry a laptop and sketch tablet) and 30% for personal use.

The designer can claim 70% of the cost ($112).

Example 5: The Retail Assistant

A retail employee buys a handbag to match her work uniform and carry personal belongings.

Not deductible because the purchase is for personal convenience, not work necessity.

Pro Tax Tip: To strengthen your claim, retain a simple log or estimate detailing how often you use the bag for work versus personal use.

Expenses You Cannot Claim

The ATO is very clear about where the line is drawn. The following are not deductible under any circumstance:

If you’re unsure, always consider the “income-earning connection test”.

Would you have bought the item if you weren’t earning income in that job? If the honest answer is “no,” the claim is more likely to be legitimate.

How to Claim Sunglasses and Bags Correctly

Claiming these deductions correctly involves a few simple but important steps:

1. Keep Your Receipts
   You must have a valid tax invoice or receipt showing the date, supplier, amount, and description.
   
2. Determine Work-Related Use
   Estimate how much of the item’s use is for work purposes. If it’s partly personal, claim only the relevant percentage.
   
3. Apply the $300 Rule
   
   • If an item costs $300 or less, you can claim an immediate deduction.
   • If it costs over $300, you must claim depreciation over its effective life.
     
4. Record Your Usage
   Keep brief notes, digital logs, or diary entries indicating how the item supports your work activities.
   
5. Lodge Under the Right Category
   
   • Sunglasses: “Protective clothing or safety equipment”
   • Bags: “Work-related tools or equipment”
     

Common Mistakes to Avoid

Even seasoned taxpayers make errors when claiming small work-related expenses. Avoid these pitfalls:

• Claiming 100% of a mixed-use item. If you use it personally, you must apportion.
  
• Claiming without receipts. The ATO requires documentation. Estimates aren’t enough.
  
• Double claiming. You can’t claim items reimbursed by your employer.
  
• Claiming for commuting. Driving-related sunglasses or bags used only for travel to work are not deductible.
  

Pro Tax Tip: Small claims often attract less scrutiny individually, but patterns of over-claiming across years can trigger ATO reviews.

Can You Claim Repairs or Replacements?

Yes. If an item was initially deductible, you can also claim costs for repairs, maintenance, or replacement.

For instance:

• Replacing scratched lenses in work sunglasses
• Repairing a damaged zipper on a laptop bag
  

However, if the replacement item is an upgrade or new purchase, it may need to be depreciated rather than fully expensed.

Record-Keeping Made Easy

Keeping track of small deductions doesn’t have to be complicated. The ATO myDeductions app allows you to:

• Photograph receipts
  
• Record usage notes
  
• Export data directly into your tax return or share it with your tax agent
  

Consistent, well-kept records can significantly strengthen your case if the ATO questions your deductions.

Special Considerations for Self-Employed Workers

If you work for yourself, for example, as a freelancer, subcontractor, or small business owner, the rules are slightly broader.

You can generally claim any expense directly related to earning your income, provided:

• It’s not private or domestic in nature.
  
• It’s substantiated with evidence.
  

A courier, for example, who buys protective sunglasses for daily driving can claim 100% of the cost as a business expense.

Meanwhile, a self-employed photographer using a bag to transport lenses and equipment can also claim the full cost.

For broader guidance, read ITP’s detailed post on self-employed tax deductions.

Real-Life Scenarios

Why Proper Claims Matter

While sunglasses and bags may seem minor, incorrect claims can have larger consequences.

The ATO actively monitors deduction patterns and compares them with industry benchmarks. Overstating personal expenses as work-related can lead to:

• Denied claims
  
• Amended returns
  
• Penalties or interest charges
  

Being transparent and realistic not only ensures compliance but also helps you build credibility as a taxpayer.

Consult a Tax Professional

Navigating mixed-use deductions can be tricky. Small distinctions — such as whether a bag carries work tools or personal belongings — can determine whether a claim is valid.

A registered tax agent, such as ITP The Income Tax Professionals, can review your circumstances, calculate depreciation where needed, and ensure every claim you make meets ATO requirements.

Final Thoughts: Function Over Fashion

When it comes to tax deductions, the ATO focuses on function, not fashion.

If an item’s primary function supports your work duties, it may be deductible. But if it’s purchased mainly for personal use, style, or convenience — it’s not.

So, before adding that sleek pair of sunglasses or designer tote to your claim list, ask yourself one question:

“Would I have purchased this item if I didn’t need it for work?”

If the answer is “yes,” leave it off your return.
If “no,” and you can back it up with evidence, you may just have a legitimate deduction.

Frequently Asked Questions

Can I claim sunglasses as a tax deduction in Australia?

Yes, if your sunglasses are used primarily for work purposes, such as protecting your eyes from glare or UV exposure while working outdoors. This applies to occupations like builders, delivery drivers, landscapers, and farmers. However, sunglasses used for commuting or personal wear are not deductible.

Can I claim my work bag or backpack on tax?

You can claim a deduction for a work bag if it’s mainly used to carry work-related tools, laptops, documents, or equipment. The key is demonstrating that the bag’s purpose is professional, not personal. Handbags or designer totes used for fashion or convenience are not claimable.

How do I claim sunglasses or bags on my tax return?

Sunglasses fall under “Protective clothing or safety equipment”, while bags are lodged under “Work-related tools or equipment.” Keep receipts, determine your work-use percentage, and claim accordingly.

What if I use my sunglasses or bag for both work and personal use?

If you use the item for mixed purposes, you can only claim the portion that relates to work. For example, if you use a bag 70% for carrying work tools and 30% for personal use, you can claim 70% of its cost.

Are expensive designer sunglasses or handbags deductible?

No. The ATO considers these personal or fashion-related purchases, not work-related necessities. Deductions apply only when the item’s primary function supports your work duties.

What is the $300 rule for work-related items?

If your sunglasses or bag cost $300 or less, you can claim an immediate deduction. For items over $300, you’ll need to depreciate the cost over their effective life.

Can I claim repairs or replacements for these items?

Yes, if the original item was deductible. You can claim expenses for repairs (like fixing zippers or replacing lenses). But if you buy a new or upgraded version, it may need to be depreciated.

What kind of records should I keep for these claims?

Keep detailed receipts showing the supplier, cost, and date. You can also record usage notes or logs that show how the item supports your work. The ATO myDeductions app makes this process simple.

Can self-employed workers claim these expenses too?

Absolutely. If you’re a freelancer, subcontractor, or small business owner, you can claim sunglasses or bags that directly relate to your income-earning activities. Just ensure you have receipts and that the use isn’t personal.

What happens if I claim something that’s not deductible?

The ATO may deny the claim, amend your return, or impose penalties if they find personal expenses listed as work-related. Always ensure your claims have a clear connection to your job duties and maintain proper documentation.

How do I know if my claim will be accepted by the ATO?

Ask yourself: “Would I have bought this item if I didn’t need it for work?”
If the answer is no, your claim is likely legitimate. If it’s yes, it’s probably personal and not deductible.

More Helpful Articles

Remote Work Tax Deductions 2025: Complete Guide for Australian Employees

Work Travel Expenses 2025 Tax Return: Complete ATO Guide

Rental Property Tax Deductions Australia 2025: Complete Guide

Keeping Tax Records: How To Maximise Your Deductions

Disclaimer: This information is general in nature and does not constitute professional tax advice. Always refer to the ATO website or consult a registered tax agent for guidance tailored to your specific circumstances.