Temporary residents are taxpayers whose normal place of residence is overseas but are temporarily living in Australia. The most common category of temporary resident is taxpayers from overseas who have come to Australia under a 457 visa for work purposes.
The ATO defines temporary residents as taxpayers who:
- Hold a temporary visa granted under the Migration Act 1958.
- Are not 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, the holder of a permanent visa or a protected special category visa holder.
- Do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1981.
Unlike Australian tax residents, temporary residents are only taxed on their Australian source income. This means their foreign sourced income is not taxed in Australia.
In addition, temporary residents only pay capital gains tax on the sale of Australian property. This means any capital gains made on the sale of Australian shares are tax free.
Temporary residents are not entitled to access the Medicare health system when living in Australia and require their own private health cover. As such, temporary residents will be exempt from paying the Medicare levy (which is 2% of taxable income). To claim the Medicare levy exemption they require a Medicare levy exemption certificate from the Medicare office.