The Temporary Resident Tax Concession

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. Nonetheless, Australia offers favorable tax benefits to individuals from overseas who decide to move there under a temporary resident visa, such as the 457/482 visa, commonly referred to as the temporary resident tax advantage.

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:

• They hold a temporary visa granted under the Migration Act 1958;
• They are not an Australian resident within the meaning on the Social Security Act 1991; and
• Their spouse is not an Australian resident within the meaning of the Social Security Act.

Significantly, an individual won’t be classified as a temporary dweller if their partner is either an Australian citizen or holds Australian permanent residency.

It’s worth mentioning that when New Zealand nationals come to Australia with a Special Category visa, they are classified as temporary residents in accordance with 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

Temporary residents’ capital gains are treated similarly to those of non-residents. Nevertheless, when it comes to capital gains on items classified as ‘Taxable Australian Property’ (like Australian real estate), they continue to be 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.

In assessing whether foreign income is subject to taxation in the source country, one must also take into account the pertinent double tax agreement.

Nonetheless, it’s essential for people with temporary visas to grasp that upon achieving Australian permanent residency or Australian citizenship, they will be classified as Australian tax residents in accordance with conventional tax laws. Consequently, they will be liable for Australian taxes on their global income and investments from that moment onward.

In case you’re planning a relocation to Australia, don’t hesitate to reach out to us for a conversation about how your visa type might influence your taxation circumstances. We can also explore strategies for optimizing the structure of your overseas investments and assets to take advantage of the temporary resident tax relief.

Take care all!