Key tax differences between a Permanent Resident and Temporary Resident

Daniel Wilkie   |   20 Aug 2020   |   4 min read

The rules around tax residency are largely different to the rules around social security, visa residency, as well as citizenship.

Australian Tax Resident

In Australia, for tax purposes, an individual is an Australian resident if they satisfy one of the residency tests. 

However, those people from outside of Australia may not realise that establishing that you are an Australian tax resident is not the end of the story. An Australian tax resident may be a permanent resident or a temporary resident, with different tax implications.

Temporary Australian Tax Resident

A temporary Australian tax resident is an Australian resident who:

  • Holds a temporary visa under the Migration Act 1958
  • Is not an Australian resident according to the Social Security Act 1991
  • Does 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, holder of a permanent visa or a protected special category visa holder.

As you can see this is different to the tax definition of Australian tax resident.

Temporary residents may be considered an Australian tax resident due to a “permanence” in their intention and action of residing in Australia, however, they may not be legally allowed to permanently reside in Australia based on their Visa, which means they will likely return to their home country.

(NZ citizens are a special case, where they can remain in Australia without applying for permanent residency, but are still considered Temporary Residents based on the “Special Category Visas” issued to them upon entry to Australia.)

The Difference Between a Temporary Resident and a Permanent Resident for Tax Purposes

All Australian residents are taxed on their Australian and worldwide income, including any capital gains on foreign property held.

Foreign residents are taxed only on their Australian sourced income.

Permanent Australian residents are treated the same as an Australian resident, and taxed on both Australian and worldwide income.

Temporary residents are taxed on their Australian-sourced income only. They are taxed at resident marginal tax rates, however, they do not pay tax in Australia on their foreign-sourced income.

Foreign residents and temporary residents are subject to capital gains tax (CGT) if a CGT event happens to a CGT asset that is taxable Australian property. They are not subject to CGT in Australia on their foreign owned taxable property for CGT purposes. This ensures, for example, that they can reside in Australia on a temporary basis without having to worry about the CGT consequences of a home they maintain back in the country in which they permanently live and are likely to eventually return to.

Taxable Australian Property

‘Taxable Australian property’ are capital assets that include real property situated in Australia, mining rights in Australia, assets of a business located in Australia, and indirect interest in Australian real property through an entity that you hold 10% or more controlling interest in (where such interest is primarily associated with ownership of the Australian real property).

This also includes options over any of the above.

Individuals are taxed on any taxable Australian property, regardless of their residency status.

Overview of Different Tax Treatment


Non-ResidentTemporary ResidentPermanent Resident
Taxed on overseas incomeNONOYES  
Taxed on Australian sourced IncomeYESYESYES   
CGT on taxable Australian propertyYESYESYES
CGT on foreign taxable propertyNONOYES
Entitled to claim CGT main residence exemption on Australian main residence       
NO
              
YES

YES           

Note that a temporary resident’s visa status may change, and they may find that they become a permanent resident, or Australian resident. If a temporary resident becomes a permanent resident, then they are deemed to have acquired any assets (other than taxable Australian property) at their market value on the date that they ceased being a temporary resident and became a permanent resident. Once an individual has become a permanent resident, simply departing Australia, even for more than six months, may not be enough to change their status to a non-resident.

NEED ASSISTANCE FOR YOUR SITUATION?

Contact us today
Contact Us

"*" indicates required fields

Do you need tax services in our other regions?
By providing us your information you agree to our privacy policy

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Corporate Residency

Please provide your details to access the online tool

Name is required.

Email is required.

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Place of
Incorporation

Is the company incorporated outside Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Central Management
and Control

Is the Central Management and Control
of the company exercised in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Carry on a Business

Does the company carry on a business in Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Voting Power

Is the company's voting power controlled
by shareholders who are residents of Australia?

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is an Australian Resident

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

The company is not a resident
but it could be a CFC

Contact us for tailored international tax advice
regarding your client's specific situation.

Contact us for tailored international tax advice regarding your client's specific situation.

Contact Us

Determining Corporate Residency

Use our online tool to determine the corporate residency of your client's business.

Contact Us

"*" indicates required fields

More articles like this

 

Moving To Australia On A Global Talent Visa


2nd Nov 2023
Matthew Marcarian

Exceptionally talented individuals with the capacity to raise Australia’s standing in their field may be eligible for a Global Talent Visa This Visa is a permanent residency Visa that offers a...

 

Managing Dual Tax Residency as an Expat


11th Jul 2023
Daniel Wilkie

When you live and work solely in one country, tax residency is straightforward However, if you are living away from your home country or living between multiple countries, then determining tax...

 

Australian Expatriates: Casualties of Law


27th Jun 2023
Matthew Marcarian

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute), with his article titled “Australian Expatriates:...

 

Moving To Australia On A Global Talent Visa


2nd Nov 2023
Matthew Marcarian

Exceptionally talented individuals with the capacity to raise Australia’s standing in their field may be eligible for a Global Talent Visa This...

 

Managing Dual Tax Residency as an Expat


11th Jul 2023
Daniel Wilkie

When you live and work solely in one country, tax residency is straightforward However, if you are living away from your home country or living...

 

Australian Expatriates: Casualties of Law


27th Jun 2023
Matthew Marcarian

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute),...