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Foreign Residents and Temporary Residents - New Law

Foreign Residents

Generally, for CGT events that happened before 12 December 2006, foreign residents have been subject to CGT on assets that have the 'necessary connection with Australia'.

The Law has been changed so that for CGT events that happen on or after 12 December 2006, foreign residents who are individuals are subject to CGT on:

  • direct interests in real estate located in Australia

  • an interest in an entity where they and their associates hold 10% or more of the entity and the value of their interest is principally attributable to Australian real property

  • an asset they have used in carrying on a business through a permanent establishment in Australia

  • an option or right over one of the above

Temporary Residents

For CGT events that happen on or after 1 July 2006, the Law has changed so that temporary residents are subject to CGT in the same way as foreign residents.

Definition of Temporary Resident

Taxpayers are temporary residents if:

  • they hold a temporary visa granted under the Migration Act 1958

  • they are not an Australian resident within the meaning of the Social Security Act 1991, and

  • their spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991

If the person is an Australian resident for tax purposes but not a temporary resident on or after 6 April 2006 they will not be entitled to the temporary resident exemptions from that time, even if they later hold a temporary visa.

An electronic publication Foreign income exemption for temporary residents is available on the ATO website.

Non-Assessable Non-Exempt income for Temporary Residents

If the person is a temporary resident:

  • their foreign income is non-assessable non-exempt income, except that earned from their employment overseas for short periods while they were a temporary resident

  • capital gains and capital losses they made from the disposal of assets that have the necessary connection with Australia from 1 July 2006 until 11 December 2006, or taxable property on or after 12 December 2006 are disregarded, except certain gains on shares and rights acquired under employee share schemes.

Any income that is non-assessable non-exempt because they are a temporary resident should not be shown on their income tax return.

Eligibility for the MLS LPSIA Tax Offset

A lump sum payment in arrears will only be eligible for the MLS LSPIA Tax Offset if the amount of the lump sum is equal to or greater than ten per cent (10%) of taxable income for MLS purposes (Excluding the spouse's income when there is a spouse) in the current year, less the total LSIA.

Click this link for information on the ATO website Lump sum payment in arrears.

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