Many expats first relocate to Australia on a temporary visa. The article below outlines some of the tax concessions that may be available to holders of a temporary Australian visa.
Australian citizens and Australian permanent residents are subject to Australian tax on their worldwide income and capital gains from sources both inside and outside of Australia. However, there are generous tax concessions for expats who relocate to Australia on a temporary resident visa (for example, a 457/482 visa) which is known as the temporary resident tax concession.
Broadly speaking, individuals who qualify as temporary residents are exempt from Australian tax on certain foreign source income and capital gains. Effectively, they are treated similarly to non-residents in this regard. They are also exempt from interest withholding tax, and special rules apply to employee share schemes.
However, temporary residents remain subject to Australian tax on their employment income.
Who is a temporary resident for tax purposes?
An individual will be considered a temporary resident if:
Importantly, an individual will not be considered a temporary resident if their spouse is an Australian citizen or Australian permanent resident.
It is further noted that New Zealand citizens who enter Australia on a Special Category visa are also considered temporary residents for the purposes of the Migration Act.
Foreign source income exemptions
In general, foreign-source income derived by a temporary resident will be exempt income for tax purposes. This applies, for example, to foreign-source dividends, interest or rental income. It can also apply to foreign pensions.
Capital gains made by a temporary resident as treated as if they have been made by a non-resident. However, capital gains which are considered ‘Taxable Australian Property’ (e.g. Australian real estate) remain subject to Australian CGT.
Structuring investments for temporary residents
The benefit of the temporary resident tax concession is that an individual can live and work in Australia while generating income and gains from foreign investments free from Australian tax.
For example, a temporary resident who moves to Australia and wishes to receive a lump sum payment from their foreign pension would not be subject to Australian tax on the lump sum withdrawal while the taxpayer is on a temporary resident visa.
The relevant double tax treaty would also need to be considered to determine if the foreign income is taxable in the source country.
However, it important for temporary visa holders to note that once they become Australian permanent residents or Australian citizens, they will be treated as Australian tax residents under the normal tax rules and be subject to Australian tax on their worldwide income and investments from this point in time.
If you are moving to Australia, please do not hesitate to get in contact with us to discuss how your visa category will impact your tax situation, and how your foreign investments and assets may be structured to benefit from the temporary resident tax concession.
Take care all!