Temporary Residents, Foreign Income, and Double Tax Relief: What You Need to Know

Did you know? If you’re living and working in Australia on a temporary visa, you may not have to pay Australian tax on your foreign income.

Under the law (Tax Laws Amendment Act 2006, Schedule 1):

✅ Foreign investment income such as overseas rent, dividends, or bank interest is generally exempt.

✅ Capital gains on foreign assets (like shares or property abroad) are also ignored for tax purposes.

✅ Australian income – such as your salary here or gains from property in Australia – remains fully taxable.

✅ You’re also spared from many complex foreign entity reporting rules.

❌ Foreign employment income (salary from working overseas) is still taxable in Australia.

This is where Double Tax Agreements (DTAs) come into play.

🔎 Anna’s Story

Anna, a German national, moves to Sydney on a 482 temporary skills visa in July 2024.

• She is considered an Australian tax resident from that date.

• She is not a permanent resident, not a citizen, and her spouse is also on a temporary visa → she qualifies as a temporary resident.

  
  

Income Profile (FY 2024–25):

• German rental property income: AUD 25,000

• German dividends: AUD 6,000

• German employment income (Berlin job, part-year): AUD 40,000

• Sydney employment income: AUD 150,000

• Capital gain from selling German shares: AUD 10,000

• Capital gain from selling an Australian apartment: AUD 50,000

  
  

Tax Treatment under Schedule 1:

• German rental + dividends = ✅ Exempt (non-assessable, non-exempt income)

• German employment income = ❌ Taxable in Australia (employment/services are excluded from the exemption)

• Sydney employment = ❌ Fully taxable in Australia

• Gain on German shares = ✅ Ignored (foreign CGT asset)

• Gain on Australian apartment = ❌ Taxable (Australian taxable property)

  
  

🌐 Interaction with the DTA (Australia–Germany)

• ·Germany taxes Anna’s Berlin employment income because the work was performed there.

• When Anna declares the same income in Australia, she claims a Foreign Income Tax Offset (FITO) for German tax already paid.

• Result: she avoids double taxation.

  
  

Final Outcome

Taxable in Australia:

• Sydney employment – AUD 150,000

• German employment – AUD 40,000 (with FITO credit)

• Australian apartment capital gain – AUD 50,000

  
  

Excluded from Australian tax:

• German rental – AUD 25,000

• German dividends – AUD 6,000

• German share gain – AUD 10,000

  
  

➡️ Total assessable income in Australia = AUD 240,000 (150k + 40k + 50k).➡️ AUD 41,000 of foreign investment income and foreign capital gains excluded.

👉 This demonstrates how temporary resident rules and DTAs work together:

• Passive foreign income is excluded,

• Foreign employment income is included but protected from double tax,

• Australian income is always taxable.