Benefits and dangers of being a temporary resident in Australia

A temporary resident is a person who satisfies the following three requirements:

1. The individual holds a temporary visa (as opposed to a permanent visa which allows an individual to remain in Australia indefinitely);
2. The individual is not an Australian resident; and
3. The individual does not have an Australian resident spouse. 

Tax implications of being a temporary resident

All ordinary and statutory income received by a temporary resident that does not have an Australian source is considered non-assessable, non-exempt income (NANE income). NANE income is income that is non-assessable and therefore “tax-free”. Further, all capital gains and capital losses are disregarded except for gains made on taxable Australian property (e.g. real estate assets located in Australia). 

There is also no withholding tax on interest paid by a temporary resident to a foreign resident (generally a 10% withholding is required).

However, temporary residents are treated the same as Australian residents with respect to employment income and personal services income (income that is derived mainly as a reward for an individual’s personal efforts or skills), which remains assessable in Australia.

Change of temporary status

Being a temporary resident has significant tax advantages, but unfortunately cannot be a long-term solution. Amongst other things, a change in visa status from temporary to permanent should cause the individual to become an Australian tax resident. 

Becoming an Australian tax resident has significant tax implications, the main one being that the individual is taken to have acquired all assets (including foreign-held assets) at the time when they became Australian tax resident. Fortunately, the individual does obtain an uplift on the assets they own, with the assets’ cost base being uplifted to the market value at that time. 

The change in status from temporary resident to resident also means the individual will no longer be exempt from Australian tax on foreign-sourced income and capital gains. 

Temporary residents enjoy significant tax benefits not available to other Australian residents. However, a temporary resident could be caught unawares where this status changes. As the temporary resident’s status hinges on the type of visa held by the individual, the innocuous administrative process of applying for a new visa could have significant tax consequences. A change in an individual's residency status requires upfront tax planning, especially when the temporary resident has offshore income or assets. 

---

Tony Nunes has over 25 years’ experience in providing tax advice to clients, especially on issues affecting cross-border transactions, acquisitions and restructures, and on all aspects of structuring the ownership and financing of corporations and their operations.

Giacomo Graziano is an experienced tax lawyer and provides tax advice to a wide range of SME, corporate, and family group clients. He is a qualified CPA and tax lawyer who provides trusted and innovative advice to his clients, with a commercial appreciation of their individual strategic goals and circumstances.