You don't have to pay tax on most of your foreign income if you:
- are an individual who is an Australian resident for tax purposes
- satisfy the requirements of being a temporary resident.
Temporary Resident – Generally, this is for those who have come to work in Australia on a temporary visa and whose spouse is not a permanent resident or citizen of Australia. Temporary residents are taxed on Australian sourced income but not on foreign sourced income. In addition, gains from non-Australian property are excluded from capital gains tax.
For temporary residents, non-employment income derived from sources outside of Australia is generally ignored for this purpose. Furthermore, employment income derived from sources outside of Australia, prior to arrival in Australia, is generally ignored for this purpose.
Assignees who meet the temporary resident definition discussed earlier are generally exempt from tax on foreign investment income and gains.
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 Home Affairs website
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 under the Social Security Act 1991 for special category visa holders.
For more information on residency for Social Security purposes, visit Department of Human Services.
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
- income earned from Australian employment or Australian services performed overseas while you are a temporary resident is subject to income tax and would still be declared in your return for the year in which you earned it. If you paid tax in a foreign country, you may be entitled to claim a foreign income tax offset when you lodge and declare that income in your Australian tax return.
- If a capital gains tax event occurs while you are a temporary resident, you are not liable to capital gains tax (nor treated as having made a capital loss) unless the asset is 'taxable Australian property'.
- Special rules apply to capital gains on shares and rights acquired under employee share schemes, for more information, see ESS – Foreign income exemption for Australian residents and temporary residents.
- 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.