Temporary resident exemption - Avustralya

The Australian Government reintroduced into Parliament last week a bill in relation to proposed reforms to provide exemption from Australian tax on foreign income for individuals who are "temporary residents" of Australia.

 

The reintroduction of these reforms was announced in the 2005-06 Budget despite being previously defeated twice in the Senate. Once enacted, these reforms will result in significant changes to the way temporary residents of Australia are subject to tax. The new rules will have effect from 1 July following the date of Royal Assent. As the Government now controls the Senate, it is likely that the reforms will apply from 1 July 2006.

 

Implicit in the reform proposals is the recognition that Australia’s current taxation system could discourage some multinational enterprises from locating in Australia. In particular the burdensome taxation of expatriate employees was seen as inhibiting attempts to attract key personnel from outside Australia. The reform measures accordingly aim to relieve in part the tax burden placed on expatriate employees on assignment in Australia, which in the case of tax equalised employees is borne by the employer.

 

In very broad terms, the new rules provide temporary residents with a tax exemption for most foreign source income and capital gains and for interest withholding tax obligations associated with foreign liabilities. This is a significant departure from Australia’s current approach to taxation and - as will be discussed below - effectively creates a new category of taxpayer.