Tax as a Temporary Resident

Being classified as a temporary resident has a series of tax advantages for clients who have come to Australia from overseas to work or live. But, many are paying more tax than they need to simply because their ability to access the temporary resident concessions has not been explored or fully understood.

There are no special tax rates for temporary residents. You still need to determine whether the individual is a resident or non-resident under the normal rules in order to determine the tax rate that will apply to that individual in Australia.

The ATO has published a rough “rule of thumb” to assist in classifying our clients in their fact sheet series in this area. The table below is an excerpt from the fact sheet:

If you…	then you…
are an overseas student enrolled in a course at an Australian institution that is more than six months long	are generally treated as an Australian resident for tax purposes.
are visiting Australia for more than six months and for most of that time work in the one job and live at the same pla	are generally treated as an Australian resident for tax purposes.
are holidaying in Australia, or are visiting for less than six months	will generally not be considered an Australian resident for tax purposes.
migrate to Australia, and intend to reside here permanently	are generally considered to be an Australian resident for tax purposes from the date of your arrival.

From 1 July 2006, amendments were made by the Government to provide exemptions to “temporary residents” to Australian tax on foreign source income. The rules also change the way that foreign capital gains are treated for temporary residents.

From 1 January 2017, those who are temporarily in Australia on a working holiday as are treated as non-residents for tax purposes, regardless of how long they are in Australia. Tax rate applying to working holiday makers is at 15% on earnings up to $37,000 (in place of the 32.5% rate that ordinarily applies to non-resident taxpayers). Ordinary marginal tax rates would be applied from $37,001 onwards.

A New Zealand citizen who is living in Australia as the holder of a special category visa is generally treated as holding a temporary visa for the purpose of these rules, even though the visa does not impose a specific time limit on their ability to live and work in Australia.

For those that qualify as temporary residents:

• Most foreign source income derived is non-assessable non-exempt income (overseas employment income and income from personal services earned while a temporary resident will be assessable in Australia);
• Capital gains and losses on assets that are not classified as “taxable Australian property” are disregarded (except certain gains on shares and rights acquired under employee share schemes);
• Interest paid by temporary residents is not subject to non-resident withholding tax.

CGT Issues

As a general rule, foreign residents are only subject to capital gain tax in relation to “taxable Australian property”. Broadly, the rules apply upon disposal of an interest in Australian real property (direct or indirect interest) and CGT assets used by a foreign resident at any time in carrying on a business through a permanent establishment in Australia.

An individual is normally deemed to have acquired all assets that are not taxable Australian property at a cost base equivalent to their market value on the date of becoming a resident. This effectively means that any capital gains and losses that accrued while a non-resident should be protected from Australian CGT.

2012/2013 Federal Budget announced that non-residents and temporary residents could no longer access the 50% CGT discount from 9 May 2012. The changes will ensure that any capital gains accruing from 9 May 2012 will not be eligible for the 50% CGT discount to the extent that the taxpayer was a non-resident or temporary resident for tax purposes.

Please don’t hesitate to contact us on info@suezaccounting.com.au if you would like to know more …