The Australian Taxation Office (ATO) recently released a tax ruling confirming that New Zealand citizens holding a Special Category Visa will be deemed to hold a Temporary Visa for the purpose of the Temporary Resident rules in the tax act.
This creates a unique tax concession for certain individuals to pay no Australian tax on foreign income and on capital gains made on disposal of Australian non-real property related assets (eg listed shares).
The tax act broadly provides that Temporary Residents only pay tax on Australian sourced income and certain foreign income that is derived as a result of remuneration as an employee or connected with employment. In addition, capital gains on foreign and Australian assets other than those connected with Australian real property should not be subject Australian tax.
Temporary residents are defined as individuals who:
a) Hold a temporary visa under the Migration Act;
b) Are not an Australian resident under the Social Security Act; and
c) Their Spouse is not an Australian resident under the Social Security Act
Certain exclusions apply to the definition.
When New Zealand citizens enter Australia using their New Zealand passport, they are issued a 'Special Category Visa' allowing them to remain and work in Australia, but not re-enter Australia if they leave (hence it is a temporary visa).
The Social Security Act definition of a resident is quite complex. However, it appears that most New Zealand citizens who have lived in Australia since before 26 February 2001 will be residents for the purposes of the Social Security Act.
In most cases it appears that New Zealand citizens who migrated to Australia after 26 February 2001 (and entered on a special category visa) and have not applied for a permanent resident visa or Australian citizenship, would not be an Australian resident for the purpose of the Social Security Act. These individuals who do not have an Australian resident spouse will be deemed Temporary Residents for Australian tax purposes.
Accordingly, those individuals who have migrated to Australia, but derive investment income overseas, or who invest in Australian shares or other non-property related assets and make a capital gain on sale should not be taxable in Australia on that income.
The migration law and taxation law around temporary residents is quite complex. This publication provides a broad summary based on our understanding of the law and is general advice only and should not be relied upon without seeking professional advice in relation to your own circumstances.
For a pdf version of this tax alert please click here.