ATO interpretation of "Temporary Resident"

[fioz]

Hi guys I am seeking clarification regarding ATO's interpretation and tax treatment of "Temporary Resident" as I have come across conflicting views on this from ATO staff and tax accountants. I came to Australia on a 482 visa and fulfil the criteria for being a resident for tax purpose and all of ATO's criteria for being a Temporary Resident.

1. My interpretation is that one can be both an "Australian resident for tax purposes" and a "Temporary Resident" at the same time and therefore be exempted from taxation of most foreign incomes. The ATO information leaflet says "as an individual you will fit into one of the following three categories" which is confusing as an individual can clearly fit into two (rather than one) categories simultaneously i.e. Temporary Resident & Australian resident for tax purposes. 

https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Occupation_guides/n75127-DE-5543_Residency-for-tax-purposes-factsheet_W.pdf

2. Whether or not one intends to stay on long term and apply for PR in the future is irrelevant in determining the current status as Temporary Resident.

3. As a temporary resident, income from overseas interest should be disclosed as "Target Foreign Income" instead of "Foreign Income".

4. As a temporary resident, there is no CGT from sales of ASX-listed Australian domiciled ETFs and no need to declare this on any part of the tax return.

I would be really grateful for your feedback on my understanding as above. Thanks very much!

[Alan Collett]

10 hours ago, fioz said:

Hi guys I am seeking clarification regarding ATO's interpretation and tax treatment of "Temporary Resident" as I have come across conflicting views on this from ATO staff and tax accountants. I came to Australia on a 482 visa and fulfil the criteria for being a resident for tax purpose and all of ATO's criteria for being a Temporary Resident.

1. My interpretation is that one can be both an "Australian resident for tax purposes" and a "Temporary Resident" at the same time and therefore be exempted from taxation of most foreign incomes. The ATO information leaflet says "as an individual you will fit into one of the following three categories" which is confusing as an individual can clearly fit into two (rather than one) categories simultaneously i.e. Temporary Resident & Australian resident for tax purposes. 

https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Occupation_guides/n75127-DE-5543_Residency-for-tax-purposes-factsheet_W.pdf

2. Whether or not one intends to stay on long term and apply for PR in the future is irrelevant in determining the current status as Temporary Resident.

3. As a temporary resident, income from overseas interest should be disclosed as "Target Foreign Income" instead of "Foreign Income".

4. As a temporary resident, there is no CGT from sales of ASX-listed Australian domiciled ETFs and no need to declare this on any part of the tax return.

I would be really grateful for your feedback on my understanding as above. Thanks very much!

Hi fioz.

Yes, you're on the right track.

If you need some assistance from a firm of tax accountants that deals with these issues every day please feel able to contact me (see my signature block below).

Best regards.

[Ken]

20 hours ago, fioz said:

Hi guys I am seeking clarification regarding ATO's interpretation and tax treatment of "Temporary Resident" as I have come across conflicting views on this from ATO staff and tax accountants. I came to Australia on a 482 visa and fulfil the criteria for being a resident for tax purpose and all of ATO's criteria for being a Temporary Resident.

1. My interpretation is that one can be both an "Australian resident for tax purposes" and a "Temporary Resident" at the same time and therefore be exempted from taxation of most foreign incomes. The ATO information leaflet says "as an individual you will fit into one of the following three categories" which is confusing as an individual can clearly fit into two (rather than one) categories simultaneously i.e. Temporary Resident & Australian resident for tax purposes. 

https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Occupation_guides/n75127-DE-5543_Residency-for-tax-purposes-factsheet_W.pdf

2. Whether or not one intends to stay on long term and apply for PR in the future is irrelevant in determining the current status as Temporary Resident.

3. As a temporary resident, income from overseas interest should be disclosed as "Target Foreign Income" instead of "Foreign Income".

4. As a temporary resident, there is no CGT from sales of ASX-listed Australian domiciled ETFs and no need to declare this on any part of the tax return.

I would be really grateful for your feedback on my understanding as above. Thanks very much!

I think you're getting tied up with the semantics but the interpretation is correct. As an individual you will fit into one of the three categories but that doesn't mean that Temporary Residents are not Australian resident for tax purpose - it's just that it's temporary. Point 4 though sounds like Australian sourced income to me so I'm not clear on what your basis is for not declaring it.

[Alan Collett]

43 minutes ago, Ken said:

I think you're getting tied up with the semantics but the interpretation is correct. As an individual you will fit into one of the three categories but that doesn't mean that Temporary Residents are not Australian resident for tax purpose - it's just that it's temporary. Point 4 though sounds like Australian sourced income to me so I'm not clear on what your basis is for not declaring it.

https://www.ato.gov.au/Individuals/Capital-gains-tax/Foreign-residents-and-capital-gains-tax/

Hi Ken.

FYI - temporary residents are subject to CGT on taxable Australian property.

Best regards.

[Ken]

12 minutes ago, Alan Collett said:

https://www.ato.gov.au/Individuals/Capital-gains-tax/Foreign-residents-and-capital-gains-tax/

Hi Ken.

FYI - temporary residents are subject to CGT on taxable Australian property.

Best regards.

Yes -  but fioz's point 4 seems to be trying to claim that ASX-listed Australian domiciled ETFs are not taxable Australian property (and not foreign property either judging from the fact that they are claimed not to be target foreign income either). Unfortunately I don't know the exact nature of these ETFs so perhaps in some instances they are judged to be foreign property despite being Australian domiciled - but that's not going to make them completely undeclared because they will then become foreign target income.

[fioz]

Thanks for the comments so far!

The ETFs didn't have any distributions before being sold therefore no 'income' at all and only capital gains. My understanding is that target foreign income only concerns 'income' and not capital gains... but let me know if I my understanding is incorrect

[fioz]

Having done a bit of reading and discussion around the topic of "Temporary Resident" and "Resident for tax purposes", it seems there is a split in opinion amongst accountants regarding this (and this can be seen on postings on various websites and forums) but the ATO rules seem pretty clear to me - I am not sure why this is not better understood which can be frustrating...any suggestion on what to do if the accountant disagrees with me in terms of tax return which is not yet submitted? I don't want to cause embarrassment and asking for an 'early engagement for advice' from ATO seems an overkill

[Alan Collett]

10 hours ago, fioz said:

Having done a bit of reading and discussion around the topic of "Temporary Resident" and "Resident for tax purposes", it seems there is a split in opinion amongst accountants regarding this (and this can be seen on postings on various websites and forums) but the ATO rules seem pretty clear to me - I am not sure why this is not better understood which can be frustrating...any suggestion on what to do if the accountant disagrees with me in terms of tax return which is not yet submitted? I don't want to cause embarrassment and asking for an 'early engagement for advice' from ATO seems an overkill

If the tax agent doesn't understand the temporary tax resident provisions - and many don't in my experience (this was particularly so when they were first introduced) - its time to change to an accountant who does.    IMHO.  

Best regards.

[fioz]

3 hours ago, Alan Collett said:

If the tax agent doesn't understand the temporary tax resident provisions - and many don't in my experience (this was particularly so when they were first introduced) - its time to change to an accountant who does.    IMHO.  

Best regards.

I have read some of your previous posts and you have shown excellent understanding of this area and you substantiate your claims with evidence. I suspect you are correct that many agents get this wrong, and my impression is that many have at least partial misconceptions - which is surprising as Australia has a large number of people on temporary visas (including accountants themselves many of whom would have arrived via a smiliar migration route) so this is by no means an obscure topic. I don't mean any disrepect, just astonished as the relevant ATO guidelines and even original tax legislations can be found on the internet.

You and Ken have been posting useful comments on the forum and this is much appreciated! Will certainly keep your services in mind if needed!

[Alan Collett]

30 minutes ago, fioz said:

I have read some of your previous posts and you have shown excellent understanding of this area and you substantiate your claims with evidence. I suspect you are correct that many agents get this wrong, and my impression is that many have at least partial misconceptions - which is surprising as Australia has a large number of people on temporary visas (including accountants themselves many of whom would have arrived via a smiliar migration route) so this is by no means an obscure topic. I don't mean any disrepect, just astonished as the relevant ATO guidelines and even original tax legislations can be found on the internet.

You and Ken have been posting useful comments on the forum and this is much appreciated! Will certainly keep your services in mind if needed!

Thanks for your kind words.

Because we are migrants and frequent discussion boards such as this/FB groups for migrants we can tend to forget that most Australian taxpayers have relatively straightforward circumstances - including that they're Australian citizens or permanent residents.

One of the first questions I ask prospective new clients is their visa status, as it usually drives most other issues on the agenda - recognising also that our clients tend to have cross jurisdictional issues and/or are expats.  

Good luck - you know where Ken and I are if you need formal assistance!

Best regards.

[fioz]

I agree with your comments Alan. Like many others on this forum, I am truly grateful for you sharing your expert knowledge with other fellow migrants from the UK. Thanks so much!

I was wondering if you wouldn't mind clarifying point 4 above... Would capital gains from sales of ETF (ASX listed, Aus domiciled, investing internationally outside Aus, zero distribution received) need disclosing under 'Target Foreign Income' or anywhere in the tax return? Not a 'share trader' (as defined by ATO) and only had little capital gains.

21 hours ago, Ken said:

Yes -  but fioz's point 4 seems to be trying to claim that ASX-listed Australian domiciled ETFs are not taxable Australian property (and not foreign property either judging from the fact that they are claimed not to be target foreign income either). Unfortunately I don't know the exact nature of these ETFs so perhaps in some instances they are judged to be foreign property despite being Australian domiciled - but that's not going to make them completely undeclared because they will then become foreign target income.

Many thanks in advance, Alan and Ken!