How your Australian residency visa status can impact on how much tax you pay

Category: News

If you are living in Australia on a temporary residency visa rather than as a permanent resident, you may be able to take advantage of certain tax exemptions. This means that you could reduce the amount of tax you have to pay on some financial transactions.

In particular, you could be exempt from the tax payable on income from a property you let, as well as interest on savings and dividend income that have a source outside Australia.

The importance of understanding “target foreign income”

The Australian Tax Office (ATO) define the types of earnings that could be tax-exempt as “target foreign income”.

Provided that you don’t include the amount in your taxable income, nor receive it in the form of a fringe benefit, this includes:

  • Any income earned, derived, or received from sources outside Australia
  • A periodic payment by way of gifts or allowances from a source outside Australia
  • A periodic benefit by way of gifts or allowances from a source outside Australia.

Even if you believe that you are eligible, you should be prepared to disclose your overseas income on your Australian tax return each year under the “target foreign income” heading. The ATO will then decide if your tax status entitles you to avoid paying tax on such earnings.

Rental property provides another potential exemption

You could also be eligible for another tax exemption when it comes to Capital Gains Tax (CGT). Holding the right kind of temporary residency visa could mean that you do not have to pay tax on the disposal of many different types of investment, including on the sale of rental property.

The exemption on property for rent is particularly advantageous, given that the disposal of a rental property is one of the main investment assets that is subject to CGT.

So, what types of visa will usually qualify as “temporary”?

Holding one of the following nine temporary subclasses of visa could mean you’re entitled to these tax exemptions:

  • 482 (Temporary Skills Shortage)
  • 489 and 491 (Skilled – Regional Sponsored)
  • 417 (Working Holiday)
  • 410 (Retirement)
  • 405 (Investor Retirement)
  • 461 (New Zealand Family Relationship)
  • 444 (Special Category – for New Zealand citizens, so long as you are not the holder of a protected special category 444 visa)
  • 188 (Business Innovation and Investment).

Additionally, you could also be exempt if you are currently holding a “bridging” visa because you are waiting for a decision on an application you’ve made for a full onshore visa.

Note that this is not a complete list of temporary visa subclasses, and holding one of them does not automatically mean that you will be eligible. For example, if you are in a relationship with an individual who is an Australian citizen or permanent resident, you will not be eligible for the temporary resident tax exemption.

The ATO website provides more information about the exemptions, and the types of visa that could make you eligible.

We strongly recommend you check with an experienced tax adviser if you need more details about different visas and their eligibility for tax exempt status on some income.

How we can help you

At bdhSterling, we have a wealth of experience in helping clients with all aspects of their financial planning, including taxation.

Get in touch to find out how we can help you.