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Temporary resident tax and investing

Special rules apply to temporary residents.  

Are you a Temporary resident?

A temporary resident visa allows you to live and work in Australia.  This visa may also entitle your spouse and children to work and study in Australia. Temporary residents could be those who are employer sponsored or applied independently. Temporary residents’ tax liability is determined on on your residence status for tax purposes and is different from you status for immigration purposes.  Temporary residents are residents that meet all of the following and the status can continue for as long as these conditions are met:

  • Hold a temporary visa granted under the Migration Act,
  • Is not an Australian Resident and have never been an Australian Resident (an Australian citizen, a permanent resident or a holder of a protected special category visa residing in Australia) within the meaning of the Social Security Act 1991,
     
  • The spouse is not an Australian Resident.

Temporary resident and Resident for Tax purpose

The ATO will assess a person as a resident of Australia for tax purpose after 6 months of arrival (does not have to be continuous) unless you do not wish to stay and set up residence as per ATO TR98/17.  After 6 months a temporary resident is deemed a resident for tax purposes and can enjoy same tax rates as an Australian resident plus there won’t be tax on full foreign source income.  

Tax on investments by Temporary residents

Interest and dividends
  • The ATO won’t tax temporary residents’ income from dividends, interest, rent, business income and royalties if the source of this income remains outside Australia. 
  • Temporary residents are exempt from deducting withholding tax from interest paid to foreign lenders. 
  • Temporary residents are not taxable on foreign sourced interest income. 
  • Temporary residents are taxable on Australian sourced interest income. 
  • Temporary residents pay tax on Australian sourced interest and must declare the amount in your annual tax return.
  • Temporary residents are taxable on Australian sourced dividends and must report the net 
    dividends and any franking credits as assessable income to the ATO in your return and pay any taxes due.
Capital Gains Tax (CGT)
  • A Foreign national can buy real estate
  • Temporary residents pay CGT (capital gains tax) on capital gains from investment property in Australia (often referred to as ‘Taxable Australian Property’ as per Division 855 of the 1997 ITAA).  
  • Temporary residents will not be liable for CGT made on these Australian listed shares (also referred to as listed securities, stocks, public shares, listed equities)  or any overseas assets including international shares (e.g. shares in Apple, Microsoft, US oil futures, China Index ETF, Gazprom) as these assets are not deemed ‘Taxable Australian Property’.  If you own listed shares no CGT event is triggered when you come in and out of Australia as you will pay tax upon disposal regardless of the residence location. 
  • Temporary residents are not liable to CGT on further gains from most Australian shares when disposed of after the taxing event occurred, if still a temporary resident then.
  • Temporary residents are not subject to CGT laws on any other assets (except the ‘Taxable Australian Property’) upon arrival to Australia and are said to have disposed of those assets without any taxable gain or loss.  
  •  Old rules apply to temporary residents who arrived before April 6, 2006 where assets owned before arrival or inherited after arrival will not be subjected for CGT if they remained a temporary resident for under 5 years.  
  • Temporary residents are only subject to CGT based on the increase in value of your assets (other than Taxable Australian property) from the date that they become a resident for tax purposes.  

Temporary resident becomes Permanent resident

When a temporary resident gets granted a permanent residency they are deemed to have acquired assets that are not ‘Taxable Australian Property’ at market value on the day of becoming a permanent resident (unless the asset was bought before September 20, 1985 and is referred to as a ‘pre-CGT asset’)

Temporary Resident employment income tax

A temporary resident of Australia pays tax on all employment income from salary, wages, contract work, and employment income earned overseas).  A contractor will pay tax on personal services income even if it is channelled via a family companies or trusts.  Temporary residents that travel overseas for a short time frame (e.g. on a conference or a business meeting) will pay tax on foreign employment income earned overseas.

Controlled foreign company rules

The controlled foreign company rules (see Part X of the ITAA 1936) tax Australian resident shareholders who control foreign companies on 'tainted' income earned by the foreign companies. Australian residents are required to include the tainted income in their assessable income in the same income year that the tainted income was derived by the foreign companies. Tainted income’ is defined as income which is mobile and able to be readily diverted to off-shore, tax heavens and low tax jurisdictions, such as dividends, interest, some royalties and some income from intra-group transactions. Presently, temporary residents are not subject to the controlled foreign entity rules.
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