Key Tax Difference Between a Permanent Resident and Temporary Resident

If you’re living in Australia, your tax status will determine how much tax you pay. If you’re a permanent resident, you’ll be taxed on your worldwide income. However, if you’re a temporary resident, you’ll only be taxed on your Australian-sourced income.

The Australian tax system differentiates between permanent residents and temporary residents based on their residency status. A permanent resident is an individual who holds a permanent visa, such as a skilled visa or a partner visa, allowing them to reside in Australia indefinitely.

On the other hand, a temporary resident is an individual who holds a temporary visa, such as a student visa or a working holiday visa, granting them limited stay rights in Australia.

In this article, we’ll explain the key tax differences between a permanent resident and temporary resident in Australia. We’ll also provide some tips for Australian expats and foreign investors living overseas.

Who is a Permanent Resident?

A permanent resident in Australia is an individual who has been granted the right to live permanently in the country. Permanent residents, also known as Permanent Residents of Australia or PR holders, have many of the same rights and responsibilities as Australian citizens. They can live, work, and study in Australia indefinitely without requiring additional permits.

Permanent residents are also entitled to access healthcare services, own property, and are protected under Australian laws. While they enjoy most privileges of citizenship, permanent residents do not have the right to vote in Australian federal elections unless they have acquired Australian citizenship.

Tax Implications of Permanent Residency

As an Australian permanent resident, you must report and pay tax on your worldwide income, including income from various sources. This means that you must report and pay taxes on income earned both within Australia and overseas.

You’ll be subject to the same tax rates as Australian citizens, and you need a Tax File Number (TFN) for tax purposes. Capital Gains Tax (CGT) applies when you sell assets, regardless of their location.

You may be eligible for deductions and tax benefits on certain expenses. Australia has double taxation agreements with many countries to prevent dual taxation, allowing you to potentially claim foreign tax credits or exemptions.

Furthermore, permanent residents are eligible for the tax-free threshold, which allows them to earn a certain amount of income without being liable for income tax. They are also entitled to various deductions, offsets, and rebates, which can help reduce their overall tax liability.

Ensure you understand the specific provisions of the agreement with your home country, if applicable.

Do I Need to Pay More Taxes as a Permanent Resident?

As a permanent resident in Australia, you are generally subject to the same tax rates as Australian citizens. However, the amount of tax you need to pay depends on various factors, including your income, deductions, and applicable tax offsets or credits.

Permanent residents have the obligation to report and pay tax on their worldwide income, which means you need to include income earned from all sources, both within Australia and outside the country, in your tax return. This includes income from employment, investments, rental properties, pensions, and other sources.

It’s important to note that permanent residents may have access to certain tax deductions and benefits, which can help reduce their taxable income. These deductions and benefits are available to both permanent residents and Australian citizens and can be claimed if you meet the eligibility criteria.

Who is a Temporary Resident?

A temporary resident in Australia refers to an individual who is residing in the country for a limited period of time with the authorization of a temporary visa. Temporary residents can include individuals on various types of visas, such as work visas, student visas, tourist visas, or working holiday visas. The specific visa granted to a temporary resident determines the purpose of their stay and any associated conditions.

Temporary residents have specific rights and responsibilities during their stay in Australia, which are outlined in their visa. These may include the right to work, study, or travel within certain limitations. They are only taxed on their Australian-sourced income, which includes income from employment, business, or investments within Australia.

Temporary residents are not eligible for the tax-free threshold and are generally subject to higher tax rates compared to permanent residents. However, they may still be entitled to claim deductions and offsets, depending on their circumstances.

Temporary residents do not have the same rights as permanent residents or citizens, such as the right to vote in elections or access certain government benefits, and they typically do not have a direct pathway to permanent residency or citizenship based solely on their temporary resident status.

Tax Implications of Temporary Residency

As a temporary resident in Australia, you are taxed only on your Australian-sourced income. Overseas income is generally exempt from Australian taxation, with exceptions based on visa type and tax treaties. You are typically exempt from Australian CGT on assets owned outside Australia.

A Tax File Number is required, and you may be eligible for deductions and tax benefits on Australian-sourced income-related expenses.

Key Tax Differences Between a Permanent Resident and Temporary Resident

Key Differences	Permanent Residents	Temporary Residents
Taxable Income	Taxed on worldwide income	Taxed on Australian-sourced income
Overseas Income	Taxed on income earned both in and outside Australia	Generally exempt from Australian tax on income earned outside Australia (subject to exceptions and tax treaties)
Capital Gains Tax (CGT)	Subject to Australian CGT on worldwide assets, including assets located outside Australia	Generally exempt from Australian CGT on assets owned outside Australia
Deductions and Benefits	Eligible for deductions and tax benefits for allowable expenses and tax credits	Eligible for deductions and tax benefits for allowable expenses related to Australian-sourced income
Tax File Number (TFN)	Required to have a TFN for tax purposes	Required to have a TFN for tax purposes

The key tax differences between a permanent resident and temporary resident in Australia are explained in a bit more detail below.

Taxation of Income: Permanent residents are taxed on their worldwide income, including income from foreign sources. Temporary residents are only taxed on their Australian-sourced income.
Capital Gains Tax (CGT): Permanent residents are subject to CGT on all of their assets, including assets held overseas. Temporary residents are only subject to CGT on their Australian-sourced assets.
Tax-free Threshold: The tax-free threshold for permanent residents is $18,200 for the 2022-2023 financial year. The tax-free threshold for temporary residents is the same, but they may not be eligible to claim it if their income is below a certain threshold.
Withholding Tax: Temporary residents may be subject to withholding tax on certain payments, such as interest payments and dividends. Permanent residents are not subject to withholding tax on these payments.
Superannuation: Permanent residents are required to make superannuation contributions. Temporary residents are not required to make superannuation contributions, but they may be able to make voluntary contributions.

In addition to these key differences, there are other tax considerations that may apply to permanent residents and temporary residents in Australia. For example, permanent residents may be eligible for certain tax deductions and credits that are not available to temporary residents.

If you are unsure about your tax obligations as a permanent resident or temporary resident in Australia, make sure to consult a tax professional.

An Overview of the Tax Obligations for a Permanent Resident and Temporary Resident

Both permanent residents and temporary residents in Australia have tax obligations that they need to fulfill. Here’s an overview of their tax obligations.

Permanent Residents

Report and pay tax on worldwide income.
Obtain a Tax File Number (TFN) for tax purposes.
Lodge annual tax returns with the Australian Taxation Office (ATO).
Subject to capital gains tax (CGT) on the disposal of assets.
May be eligible to claim deductions and benefits for allowable expenses.
Consider double taxation agreements, if applicable.

Temporary Residents

Taxed on Australian-sourced income.
Require a Tax File Number (TFN) for tax purposes.
Lodge tax returns with the Australian Taxation Office (ATO).
Generally exempt from Australian taxation on income earned outside of Australia.
Typically exempt from capital gains tax (CGT) on assets owned outside of Australia.
May be eligible to claim deductions and benefits for Australian-sourced income-related expenses.

Get Help from a Tax Professional

It is important to understand the tax differences between permanent residents and temporary residents in Australia. To make sure you fulfill your tax responsibilities correctly, it’s a good idea to talk to tax experts like accountants or tax professionals. They can give you the right advice based on your situation.

Seek help from our experts to ensure compliance with the tax rules in Australia and make informed decisions. Feel free to reach out to our team of tax advisors for further assistance today.

Frequently Asked Questions

What is the difference between a permanent resident and a temporary resident for tax purposes?

A permanent resident is someone who has been granted permanent residency in Australia. This means that they have the right to live and work in Australia indefinitely. A temporary resident is someone who is in Australia on a temporary visa. This means that they have a limited period of time to stay in Australia.

What happens if I become a permanent resident while I'm overseas?

If you become a permanent resident while you’re overseas, you’ll be deemed to have acquired all of your assets at their market value on the date that you became a permanent resident. This means that you may have to pay capital gains tax on any assets that have increased in value since you acquired them.

What happens if I leave Australia and become a non-resident?

If you leave Australia and become a non-resident, you’ll only have to pay tax on your Australian-sourced income for the period that you were a resident. However, you may still have to pay Australian CGT on the disposal of assets that you own in Australia.

Can temporary residents claim the tax-free threshold in Australia?

No, temporary residents in Australia are not eligible to claim the tax-free threshold. The tax-free threshold is available only to permanent residents and Australian citizens. Temporary residents are subject to different tax rates and do not have the same tax benefits as permanent residents.

Can temporary residents access their superannuation when they leave Australia?

The ability for temporary residents to access their superannuation (retirement savings) depends on their visa type and the duration of their stay in Australia. In most cases, temporary residents cannot access their superannuation until they permanently leave Australia. However, there may be certain circumstances, such as severe financial hardship or specific visa subclasses, that allow limited access to superannuation.

Do temporary residents have to pay capital gains tax (CGT) on worldwide assets?

No, temporary residents in Australia are generally not liable for capital gains tax (CGT) on their worldwide assets. CGT is typically applicable only to permanent residents and Australian citizens. Temporary residents are subject to CGT only on their Australian assets, such as property or investments located within the country.

Can temporary residents claim deductions and rebates on their taxes?

Yes, temporary residents may be eligible to claim deductions and rebates on certain expenses incurred in earning their Australian-sourced income. However, the availability and extent of deductions and rebates may vary based on individual circumstances and visa type. It is recommended to consult with a tax professional to determine the specific deductions and rebates applicable to temporary residents.

What are some other tax considerations that may apply to permanent residents and temporary residents in Australia?

In addition to the key differences mentioned above, there are other tax considerations that may apply to permanent residents and temporary residents in Australia. For example, permanent residents may be eligible for certain tax deductions and credits that are not available to temporary residents.

What should I do if I am unsure about my tax obligations as a permanent resident or temporary resident in Australia?

If you are unsure about your tax obligations, you should consult with a tax professional. They will be able to help you understand your individual circumstances and ensure that you are meeting your tax obligations.