Temporary residents are subject to the same capital gains tax (CGT) rules as foreign residents. However, there are specific rules where the CGT asset is a share or right acquired under an employee share scheme and you are, or have been, a temporary resident. For more information see - Foreign income exemption for Australian residents and temporary residents - employee share schemes.
This means that if you are a temporary resident, you will be subject to CGT on CGT events that happen to taxable Australian property.
You are a temporary resident if you:
- hold a temporary visa granted under the Migration Act 1958
- are not an Australian resident within the meaning of the Social Security Act 1991
- do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.
The Social Security Act 1991 defines an ‘Australian resident’ as a person who resides in Australia and is an Australian citizen, the holder of a permanent visa or a protected special category visa holder.
Note: Anyone who is an Australian resident (for tax purposes) after 6 April 2006 but is not a temporary resident cannot later become a temporary resident, even if they later hold a temporary visa.
Ceasing to be a temporary resident
If you cease being a temporary resident and remain an Australian resident, you are taken to have acquired assets (other than assets you acquired before 20 September 1985) that are not taxable Australian property for their market value at the time you ceased being a temporary resident. There is an exception to this rule for employee shares and rights.
Fred has lived most of his life in London working as a market research consultant. He is single. He owns several apartments in and around London that are leased to tenants and has a share portfolio which provides him with regular dividend income. On 12 December 2011, he arrives in Brisbane to commence work with an Australian company that conducts market research. For the first three years, Fred holds a temporary visa and expects to eventually return to the United Kingdom. During this period he is a temporary resident as he holds a temporary visa and meets the other elements of the definition. After the first three years, Fred decides to apply for and is granted permanent residence in Australia on 15 March 2016.
The CGT implications for Fred are as follows.
For assets disposed of between 12 December 2011 and 14 March 2016
Fred is a temporary resident and is only subject to CGT in Australia on any assets that are ‘taxable Australian property’.
For assets disposed of on or after 15 March 2016
Fred ceases being a temporary resident on 15 March 2016. From then he will be subject to tax in Australia on his worldwide income and capital gains. Any capital gains or capital losses Fred makes in respect to the assets held in the United Kingdom will become subject to CGT in Australia and the cost base for these assets will be set according to the market value of the assets on 15 March 2016. Fred will receive a foreign tax credit for any tax paid in the United Kingdom on those gains.
End of example