• Foreign income exemption for temporary residents - introduction

    Background

    This fact sheet outlines rules applying to temporary residents that came into effect from 1 July 2006. You may be affected if you are an Australian resident for tax purposes and you also qualify as a temporary resident.

    If you are not an Australian resident for tax purposes and you qualify as a temporary resident you will generally not be affected by these rules - unless you acquired shares or rights under an employee share scheme.

    From 1 July 2006, you will not have to pay tax on most of your foreign income if you:

    Who is a temporary resident?

    You are a temporary resident if:

    • you hold a temporary visa granted under the Migration Act 1958
    • you are not an Australian resident within the meaning of the Social Security Act 1991
    • your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991.

    If at any time on or after 6 April 2006, you have been an Australian resident for tax purposes but not a temporary resident, you will not be entitled to the temporary resident exemptions from that time, even if you later held a temporary visa.

    The Migration Act provides that a temporary visa is a visa to travel to and remain in Australia:

    • during a specified period
    • until a specified event happens
    • while the holder has a specified status.

    Temporary visas are distinguished from permanent visas which allow a person to remain in Australia indefinitely. For more information on immigration issues, visit the Department of Immigration and Border Protection website at immi.gov.auExternal Link

    Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa. Taxpayers who hold a protected special category visa and were in Australia on or before 26 February 2001 are also considered to be Australian residents for the purposes of the Social Security Act 1991.

    There are other requirements relating to residency for special category visa holders.

    For more information on residency for social security purposes, see the Centrelink website at centrelink.gov.auExternal Link

    How are you affected if you are a temporary resident?

    If you are an Australian resident for tax purposes and meet the requirements to be a temporary resident, the temporary resident rules mean:

    • Most of your foreign income is not taxed in Australia except income earned from employment performed overseas for short periods while you are a temporary resident. This income is subject to income tax and would still be declared in your return for the year in which you earned it. Where you paid tax in a foreign country, you may be entitled to claim a foreign income tax offset when you lodge your tax return.
    • If a capital gains tax event occurs on or after 12 December 2006, a temporary resident is not liable to capital gains tax (nor is treated as having made a capital loss) unless the asset is 'taxable Australian property'.
    • If a capital gains tax event (such as the sale of an asset) occurred between 1 July 2006 and 12 December 2006, a temporary resident was not liable for capital gains tax (nor was the temporary resident treated as having made a capital loss) unless the asset had a 'necessary connection with Australia'. Special rules apply to capital gains on shares and rights acquired under employee share schemes (For more information employee share scheme refer to Foreign income exemption for Australian residents and temporary residents - employee share schemes).
    • Interest you pay to foreign residents (for example, foreign lenders) is not subject to withholding tax.
    • Controlled foreign company record keeping obligations are partly removed.

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      Last modified: 28 Jun 2016QC 18869