Most dryland grain growers in Australia retain all or most of their crop residues to protect the soil from erosion and to improve water conservation but retaining stubbles with a high carbon-to-nitrogen (C:N) ratio can affect N availability to crops. A simulation experiment was conducted to investigate the effects of N fertilizer application rate and residue retention on soil N dynamics. The simulation used seven N fertilizer application rates (0, 25, 50, 75, 100, 150 and 200 kg N ha(-1)) to wheat (Triticum aestivum) over 27 years (1990-2016) at four locations across a gradient in annual rainfall in Victoria, Australia. Nitrogen immobilization, denitrification and N leaching loss were predicted and collectively defined as sources of N inefficiency. When residues were retained, immobilization was predicted to be the biggest source of inefficiency at all simulated sites at N application rates currently used by growers. Leaching became a bigger source of inefficiency at one site with low soil water-holding capacity, but only at N rates much higher than would currently be commercially applied, resulting in high levels of nitrate (NO3-) accumulating in the soil. Denitrification was an appreciable source of inefficiency at higher rainfall sites. Further research is necessary to evaluate strategies to minimize immobilization of N in semi-arid cropping systems.