Are you a temporary resident for tax purposes?

January 27, 2018

Australia has a reputation as being a high taxing country. Most people are aware that if they are a resident of Australia they are taxable on all their income – whether from sources in or outside Australia.That is, Australia requires tax residents to declare income and capital gains from sources worldwide, regardless of whether the income is remitted to Australia.

However relatively few people are aware that Australia also has a generous concession for expats on their overseas assets. This is known as the ‘temporary resident exemption’ – which was introduced by the Australian government more than a decade ago.

New Zealand citizens who arrived in Australia after 26 February 2001 can also usually qualify under these rules which can give extremely favourable outcomes to New Zealand citizens with overseas assets.

If you are an expat and have the status of a temporary resident for migration purposes (i.e you hold a temporary visa, such as a 457 Visa) then you will most likely also be a temporary resident for income tax purposes. This applies unless your spouse is an Australian citizen or Permanent Resident, in which case you will not be able to benefit from the exemptions.

If you are a temporary resident for tax purposes in Australia then you are not required to declare foreign investment income such as foreign dividends, trust distributions or foreign bank interest, even if you bring this income into Australia. It is also the case that income that would otherwise be taxable under Australia’s controlled foreign company rules is also disregarded if a person is a temporary resident. Generous capital gains tax exemptions also apply to assets which are not Australian real property (i.e real estate) or interests in Australian real property.

These concessions mean that temporary residents are able to live and work in Australia, but often only pay tax on income from employment, while they can continue to hold significant foreign investments. The exception relates to employment related income which may be derived from foreign sources by a temporary resident living in Australia.

We are often contacted by people who wish to clarify their status under the temporary resident rules. Once people understand that they are temporary residents then many of their concerns about Australia’s worldwide approach to taxation tend to drop away.

However, temporary residents who are considering becoming Permanent Residents in Australia still need to be aware of how drastically their tax situation can change if they become Permanent Resident. This is because if you become a Permanent Resident you would be taxable under the normal rules on your worldwide income. We encourage global expats with significant overseas assets to seek tax advice as soon as they determine that they wish to apply for Permanent Residency in Australia.

If you are considering applying for Permanent Residency in Australia and have significant overseas assets our specialist team would welcome the opportunity to assist you with detailed tax advice so that you fully aware of the tax implications. CST’s Strategic Tax Review is an appropriate service for clients in this situation. If you are interested in seeking advice from us please contact us.

CST’s tax advisors have experience with advising high net worth global expatriates arriving in Australia from all parts of the world.

Our specialist integrated Australia/US advisory capabilities can also make a real difference for US expatriates living in Australia who have to lodge tax returns in Australia and the United States.

Dianne Lee

Dianne Lee

Dianne has over 15 years of business tax experience and has experienced the expat lifestyle having worked in New York and studied in South Korea. Her areas of specialty include tax residency, capital gains tax planning, employee share schemes and family trusts.

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