NO.005

ENHANCING THE FOREIGN INCOME TAX ARRANGEMENTS FOR TEMPORARY

RESIDENTS

The Treasurer today announced improvements to the taxation arrangements for

temporary residents which will give Australia one of the most competitive expatriate

taxation regimes in the world.

A foreign source income tax exemption for temporary residents was introduced

into Parliament twice in 2002, but failed to pass the Senate because of Labor

Party opposition. The Government announced it would re-introduce the measure

in the 2005-06 Budget.

The Taxation Laws Amendment (2006 Measure No. 1) Bill 2006 (the Bill)

introduced today implements that announcement but goes further than the previously

blocked legislation which was to apply a tax exemption to a temporary resident

for a period of 4 years, only if the temporary resident had not been an Australian

resident within the previous 10 years.

The Government will now remove these time limits as they provide unnecessary

disincentives and distortions for individuals wishing to remain working in Australia.

The measure will now apply to holders of a temporary visa (excepting those who

are directly or indirectly treated as residents for social security purposes).

Holders of a temporary visa will not be taxed on foreign source income. They

will continue to be taxed on all Australian source income and salary and wages

generally, including income from employee shares or rights.

Further, capital gains taxation of temporary residents will be aligned with

non-residents. The combination of these changes will also ensure that the capital

gains tax rules for departing residents do not apply to temporary residents.

The changes will significantly reduce administrative and compliance costs.

It will also further reduce the cost to Australian businesses of employing expatriates.

The Government is committed to assisting businesses to access the skilled labour

needed to compete internationally. These significant improvements have been

welcomed in consultation with business and taxpayer representatives.

CANBERRA

16 February 2006

Contact: David Alexander

02 6277 7340