NO.105

TAXATION OF TEMPORARY RESIDENTS

The Government will not proceed with a previously announced measure to provide

a four-year exemption for first-time temporary residents for most foreign source

income, including capital gains. The measure would also have included removing

interest withholding tax obligations for temporary residents, and making temporary

residents exempt from the Foreign Investment Fund rules regardless of the period

of residence.

The measure aimed to make it easier for Australian companies to draw on global

markets for highly skilled labour by reducing the compliance and tax burden

on first-time temporary residents for the defined types of foreign income. It

would have assisted in meeting areas of shortage and increased skills transfer

to the Australian workforce. As Australian employers often meet these tax costs,

the measure would also have the effect of reducing the costs of Australian businesses.

A number of countries have taken similar initiatives in recent years.

The Government has twice introduced legislation into the Parliament to implement

the arrangements. Regrettably, it was blocked in the Senate on both occasions.

Against this background and to provide certainty for taxpayers, the Government

has decided not to proceed with the measure. This is unfortunate, given the

positive economic effects of the measure, but the Government believes there

is little prospect of obtaining Opposition support for the measure being passed

by the Senate.

CANBERRA

8 December 2003

Contact: David Alexander

02 6277 7340