Quick Summary:
- Four statutory tests determine tax residency: resides, domicile, 183-day, superannuation.
- Temporary residents are often exempt from tax on foreign income and non-Australian assets.
- Australian-sourced income is always taxable, including employment and certain investments.
- Capital gains tax (CGT) rules differ for temporary residents; non-Australian assets are usually exempt.
- Keep accurate records of income, assets, and residency status, and consult ITP Accounting Professionals if in doubt.
Picture this: you’ve just moved to Australia on a temporary visa. You’ve rented an apartment, opened a bank account, and started a new job. Then tax season arrives, and suddenly you’re asking: Do I file an Australian tax return? Do I pay tax on my overseas income? What about my investments back home?
Here’s the catch: Australian tax residency doesn’t depend on citizenship or permanent visas. Instead, the Australian Taxation Office (ATO) uses legal tests to determine whether you’re a tax resident. For temporary residents, these rules can significantly affect how much tax you pay and on what income.
This guide breaks it down for students, professionals, and business owners. By the end, you’ll understand your obligations, exemptions, and how to navigate 2025 rules confidently.
How Australia Decides Residency: The Four Tests
The ATO applies four tests, and passing any one may classify you as a resident for tax purposes.
What Are the Tax Residency Tests in 2025?
1. The Resides Test
This test looks at where you “live” in practice. Consider:
- Physical presence
- Employment or business ties
- Family and social connections
- Housing arrangements
Client Case Study: Relocating to Melbourne on a Two-Year Contract:
When Daniel accepted a two-year work contract in Melbourne, he expected challenges, new city, new role, new routines. What he didn’t expect was how his move would affect his Australian tax residency.
To settle in quickly, Daniel rented a long-term apartment near his workplace and opened local bank accounts for salary deposits and everyday expenses. Within weeks, he was living much like any other Melbourne resident, commuting to work, paying bills, and integrating into the community.
When tax time came, Daniel wasn’t sure whether his visa status would prevent him from being treated as an Australian tax resident. But under the Ordinary Concepts Test, the ATO looks at how someone actually lives in Australia.
Daniel:
- committed to a two-year stay,
- secured long-term accommodation, and
- established financial and day-to-day ties (like local banking), he was considered to have made Australia his home for the period of his contract.
Outcome: Despite holding a temporary visa, Daniel qualified as an Australian tax resident, allowing him access to resident tax rates and relevant tax offsets.This case highlights how your actions and lifestyle, not just your visa, can determine your residency status in Australia.
For similar cases, a tax expert from ITP Accounting Professionals can assess your residency position accurately.
2. The Domicile Test
If your permanent home (domicile) is in Australia, and you don’t have a permanent abode elsewhere, you may be a resident even if temporarily overseas.
- Your domicile can be from birth or established by choice.
- This is often relevant for professionals who move back and forth between countries.
3. The 183-Day Test
If you spend 183 days or more in Australia during a financial year (1 July–30 June), you may be a tax resident.
- Exception: if your usual home is overseas and you have no intention to stay.
- Arrival and departure days count.
4. The Commonwealth Superannuation Test
Applies if you or your family are contributing members of certain Australian Public Service super funds (CSS/PSS).
- Rare for new arrivals in 2025, but still worth noting.
What Tax Residency Means for Temporary Residents
If You Qualify as a Resident, What Are Your Tax Obligations?
As a tax resident (even on a temporary visa), you are generally taxed on:
- Australian-sourced income, including salary, rental income, and investments
- Certain capital gains on Australian assets
Temporary residents often don’t pay tax on foreign-sourced income or non-Australian assets under Section 768-R of the Income Tax Assessment Act 1997.
Pro Tax Tip: Keep clear records of income by source and date, this helps ensure you don’t over-report and pay tax unnecessarily. An expert at ITP Accounting Professionals can help ensure nothing is over-reported.
Real-Life Scenarios You Might Face
Scenario 1:
Temporary Visa Holder Earning Foreign-Sourced Income
Marta relocates from Spain to Australia on a 2-year Temporary Skills Shortage (TSS) visa after accepting a role with an IT company in Brisbane. She earns $80,000 AUD per year from her Australian employer.
However, she doesn’t fully cut ties with her life overseas. Before moving, Marta built a steady freelance client base in Europe and continued taking on projects after arriving in Australia, earning around 20,000 EUR (≈ $30,000 AUD) annually.
Naturally, Marta worries she’ll be taxed twice,once in Europe and again in Australia, especially when she sees the large income figures on her invoices.
But here’s the good news:
Because Marta is a temporary resident for Australian tax purposes, only her Australian-sourced income is taxable. This means she does not need to declare her 20,000 EUR freelance income on her Australian tax return.
Her obligations:
- She reports only her $80,000 Australian salary.
- Her foreign income remains exempt, saving her from significant tax stress and unnecessary paperwork.
This rule makes a huge financial difference for temporary visa holders working globally while living locally.
Scenario 2:
Selling Foreign Shares While a Temporary Resident
Before moving to Australia, John spent years investing in U.S. tech stocks and European index funds. His portfolio steadily grew while he lived abroad.
A year after moving to Australia on a temporary work visa, John decided to sell some of his foreign shares, generating a profit of $50,000. He assumed this capital gain would be taxed in Australia, just like it would be for an Australian resident.
But under Australia’s temporary residency rules, there’s a major advantage:
- Capital gains on non-Australian assets are disregarded.
- As long as the shares were not acquired while he was an Australian resident, they do not attract CGT.
So John’s $50,000 gain is exempt from Australian tax, saving him thousands. He keeps the profit, free from Australian CGT, and can reinvest or use it however he likes.
This is one of the most financially powerful benefits enjoyed by temporary residents.
Scenario 3:
Buying or Selling Australian Property as Temporary Residents
Sarah and her partner moved to Australia on temporary visas and fell in love with Sydney. After a few months, they decided it was time to put down some roots and consider buying an apartment.
However, unlike foreign income or overseas assets, Australian property is treated differently under tax law.
Here’s what they need to know:
- If they buy property, they may be subject to certain foreign-buyer surcharges, depending on the state and the type of visa they hold.
- If they later sell that property, they must pay Capital Gains Tax (CGT) on any profit made, temporary residency does not exempt them from CGT for Australian assets.
- Temporary-resident exemptions apply only to foreign-sourced income and non-Australian assets, not Australian investments.
Example:
If Sarah and her partner purchase a Sydney apartment for $900,000 and later sell it for $1,050,000, the $150,000 capital gain is taxable, subject to CGT rules.
This scenario highlights a crucial distinction:
Temporary residents enjoy generous exemptions for foreign income and overseas assets, but Australian property is always taxable, regardless of residency status.
If unsure, book a consultation with ITP Accounting Professionals.
How to Maximise Your Tax Efficiency in 2025
- Track Australian vs foreign income meticulously.
- Understand CGT treatment of assets when your residency status changes.
- Take advantage of temporary-resident exemptions on foreign income and non-Australian assets.
- Remember deductions: work-related expenses, rental property costs, and other allowable expenses remain relevant.
- Note superannuation updates: from 1 July 2025, employer contributions rise from 11.5% to 12%.
Your Next Move: Staying Smart with Tax
Navigating tax residency as a temporary resident can feel overwhelming. To stay compliant and optimise your obligations:
- Review your visa status, assets, and income sources.
- Maintain detailed records: income, dates, currency, assets’ location.
- Consult ITP Accounting Professionals for guidance, especially if you hold foreign investments or plan to change residency status.
FAQs
Do I need to file an Australian tax return as a temporary resident?
If you have Australian-sourced income (salary, rental income, investment income), you likely need to file. Foreign-only income may be exempt, depending on your visa.
Is foreign income taxed while I’m on a temporary visa?
Generally no, Section 768-R exempts foreign-sourced income for temporary residents, except Australian employment income.
What about capital gains from foreign assets?
Gains on non-Australian assets are usually disregarded for CGT purposes while you remain a temporary resident.
What changes when I become a permanent resident?
Standard resident rules apply. Assets are deemed acquired at market value on becoming a resident; foreign and worldwide income is assessable.
Does superannuation affect my residency status?
Not directly, but contributing to an Australian super fund may influence your ties under “resides” or “domicile” tests.
Need Help With Your Residency or Tax Return?
Tax residency rules can get complicated fast, especially when you’re juggling visas, overseas income, or investments.
ITP Accounting Professionals can help you get it right the first time.
- Personalised advice for temporary residents
- Guidance on foreign income, CGT, and residency tests
- Support with tax returns, deductions, and compliance
- Australia-wide offices and online appointments
Book an appointment with an ITP expert today. Find your nearest ITP Accounting Professionals office
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Disclaimer: This blog is for general informational purposes only and does not constitute professional tax advice. Tax law is complex and subject to change. Consult a qualified tax adviser or the ATO for guidance specific to your circumstances.