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457 or Permanent Residency? A tax perspective for Expats

By Swish

November 30, 2015

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When someone has moved to Australia to live the Australian Taxation Office or ATO generally considers them to be residents of Australia for tax purposes. What you might not know is there are several different types of tax residents in Australia. What normally happens is once you become a tax resident you’re taxed on your worldwide income. This means that if you have assets in other countries you then have to start returning any income you earn from them in Australia.

This can be challenging for two reasons in particular:

  • It becomes very complex very quickly
  • There’s the risk of double taxation (tax treaties will try to avoid this but are not always effective)

So to simplify this process, some years ago the Australian Government introduced a series of legislation regarding “temporary residents”. What it states is that people who are here on short term or temporary visas effectively only pay tax on their salary and wage income.

They also have the same exemptions to the Australian Capital Gains Tax as a non-resident. This means that as long as the shares they buy into are not mining or mining industry related, generally, when sold again the temporary resident won’t pay Australian taxes on the sale.

Benefits of a 457 include the visa typically lasting four years and its renewability. You can have a situation where someone might be here for eight or twelve years on a rolling or renewed 457 visa. This person still has investments overseas but effectively never has to return them in Australia. The only potential pitfall of this visa is that if you’re hired by an Australian company but you’re then sent to another country you will still liable to pay Australian taxes on the income you received.

The trick is that a 457 or equivalent short term visa (including some resident visas from New Zealand) are considered temporary. The downside is that if you find yourself in a serious relationship (i.e. living together) with an Australian resident then you immediately lose your exemption as you are no longer considered temporary.

Applying for PR doesn’t change the tax situation for an individual. However once you’ve been granted Permanent Residency all the tax benefits are gone and you’re subject to all normal taxation provisions that apply to any Australian tax resident. It gets complicated at that point in time because typically there are all sorts of revaluations and assessments on your foreign investments that need to be done to remain compliant.

Overall individuals who are currently living and working in Australia under a 457 visa might benefit from remaining on a 457 for as long as possible. This is particularly true if you own a home or business in a foreign country as it could reduce or eliminate the likelihood of you having to pay taxes in two countries.

Have questions? Do you need more clarification? At M Squared & Associates we specialise in expatriate tax, international tax, individual and corporate tax compliance, grants and concessions, and corporate structuring. With over 30 years combined experience between our directors we are knowledgeable and recognised within the industry for providing sound advice and compliant tax preparations for expatriates and international companies working within Australia. Please contact us today via our website or give us a call on +61 8 6380 7800 to let us assist you.

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