Australia — New Zealand citizens and the temporary resident rules
30 March 2012
The Australian Taxation Office (ATO) has recently issued a draft Taxation Determination (TD) which seeks to clarify the application of the temporary resident rules to New Zealand (NZ) citizens.
This TD is important, as temporary residents and residents (non-temporary) are treated differently for Australian tax purposes. While residents (non-temporary) are taxable on their worldwide income and capital gains, temporary residents are exempt from tax on most foreign source income and gains.
In order to qualify as a temporary resident, one of the conditions that must be satisfied is that the taxpayer must hold a temporary resident visa. Furthermore, they must not have been an Australian resident (non-temporary) at any time after 6 April 2006.
When an NZ citizen enters Australia under an NZ passport, they are generally issued with a Special Category Visa (SCV) which does qualify as a temporary resident visa. However, this visa does not include a right to re-entry and therefore ceases to have effect when the individual departs Australia. Therefore, strictly speaking, an NZ citizen would no longer qualify as a temporary resident (and would therefore lose any entitlement to the temporary resident concessions) once they leave Australia – even if for a single day and regardless of the reason (work, holiday etc).
This TD states that given an NZ citizen with an NZ passport generally has an ongoing right to re-enter Australia (on another SCV visa), the individual will be treated as holding a temporary resident visa for the purposes of Australia’s temporary resident tax regime.
The ATO has indicated that when the final TD is released, it is proposed to apply both before and after its date of issue.
The clarification provided by this TD, once finalised, will provide much needed comfort for NZ citizens who will not lose their temporary resident status simply by leaving Australia, either on business trips or holidays.
The TD is especially beneficial to those NZ citizens with significant foreign source income and/or capital gains, as these will continue to be exempt from Australian tax while they maintain their temporary resident status.
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