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New taxation legistration for temporary residents in Australia

According to the Australian principles of taxation, Australian residents pay tax on all income earned throughout the world. However, new taxation legislation is to be implemented in Australia to be effective as at 1st July 2006 that will exempt foreign source income for temporary residents from Australian income tax for a period of four years. This means that all income earned outside Australia by a temporary resident will not be subject to Australian income tax for a period of four years.

Since March 1, 2003 most immigrants interested in migrating to Australia under the Business Skills category now need to apply for a Business Skills ( Provisional ) Visa whereby they enter Australia as temporary residents for a period of up to four years. This means that the new taxation legislation will be most beneficial to such visa class holders.

Since the new taxation legislation has not yet been introduced, the guidelines as to what will constitute a "temporary resident " have been yet been finalised. However, previous documentation that has been released provides clarifications as to what constitutes a temporary resident. Previous documentation considered an Australian individual to be a temporary resident where the following conditions were satisfied:

( a ) The person is the holder of a temporary entry visa granted under the Migration Act 1958;

(b ) The person has not applied for a permanent visa under the Migration Act 1958 ( unless the application, and any review or appeal proceedings in relation to the application, has been finally determined, withdrawn or otherwise disposed of );

(c) The person has not been an Australian resident at any time during the 10 years before last becoming an Australian resident; and

(d) The person has not been an Australian resident for more than 4 years since last becoming an Australian resident.

The new taxation legislation means that the following visa subclasses will be considered temporary entry visas granted under the Migration Act:

BUSINESS VISAS

Visa subclass 160 - Business Owner ( Provisionsl ) Category

Visa subclass 164 - State/Territory Sponsored Senior Executive ( Provisional ) category

Visa subclass 161- Senior Executive ( Provisional ) category

Visa subclass 165- State/Territory Sponsored Investor ( Provisional ) category

Visa subclass 162- Investor ( Provisional ) category

SKILLED MIGRATION VISAS

All holders of visas issued under the Skilled Independent Regional ( Provisional ) visa category - subclass 495 will be considered temporary residents.

The new legislation will allow the temporary Australian resident to enjoy an exemption from Australian income taxation on his foreign source income for a period of up to four years or until permanent residence status is granted.

Once a temporary Australian resident changes status to a permanent Australian resident, this tax exemption no longer applies and the permanent resident is then taxed on world wide income in Australia as soon as he becomes a permanent resident of Australia. Furthermore, it should be noted that on becoming a permanent Australian resident, the creation of and any transfer of assets to an offshore trust would be subject to the transferor trust provisions in Australia.

The effect of this legislation is to enable the temporary resident to settle in Australia for a period of four years and to enable the temporary resident to continue to receive foreign source income during this period without the foreign source income being subject to Australian income taxation.

Further details will follow as soon as the legislation introduced.