Australia: Govt to tax Australian expat wages
The Australian Government is facing another fight over tax changes in its Budget – this time over rules affecting expatriate workers. Expats on contracts of two years or less are exempt from paying Australian tax while overseas. But the Treasury says that means that thousands of highly paid workers pay little or no tax, and it wants to tighten up the rules.
Employers say the changes will make it more expensive to send local workers offshore. A Senate committee has called for changes to the new rules.
Presenter: Sue Lannin
Speaker: Stephen Coakley, tax partner at accounting firm, Deloitte; Michael Dirkis from the Taxation Institute
SUE LANNIN: The Rudd Government faced a big row over its plan to tax upfront employee shares schemes. Now companies say it’s acted too quickly in another attempt to raise revenue. The Budget changed the tax rules surrounding expat workers. They now have to pay tax on income earned overseas on contracts of between 91 days and two years.
Michael Dirkis from the Taxation Institute says he’s had a lot of complaints from his members.
MICHAEL DIRKIS: They’ve been pushed through with a belief that there is a small rorting group without any consideration of their wider impact. And even with that group that has also been the subject of these measures there’s been no consideration about the possibilities of double taxation in respect of superannuation, income tax and also in terms of FBT (Fringe Benefits Tax).
SUE LANNIN: The Federal Coalition has called for more consultation and says the plans are rushed and poorly thought out.
Stephen Coakley is a partner at global accounting firm Deloitte.
STEPHEN COAKLEY: Now what will happen is that they will remain subject to Australian tax. They’d be able to claim a credit for any foreign taxes paid. The big issue for many Australians working in particularly the Asia-Pacific region is that in a lot of those countries the tax rates can be significantly lower than Australia but the change will mean that they will now pay an effective Australian rate of tax as opposed to the lower foreign rate of tax which in a country such as Hong Kong could be as little as 16 per cent.
SUE LANNIN: The Treasury says the measures will reap $AUD675-million over three years. It says around 11,000 expats on incomes of more than $85,000 a year are paying little or no tax. Their tax bills are expected to rise by about $11,000 per annum. Treasury also says some companies have used the exemption as a wage subsidy by paying workers less than they would otherwise get.
Stephen Coakley thinks the number of expats paying minimal tax is low.
STEPHEN COAKLEY: My view at least based on my experience is that there’s no large-scale rorting but there were certainly some situations were individuals could find themselves paying significantly lower rates of tax. Likewise people going to countries where they have similar rates of tax to Australia, even in some cases higher rates of tax than Australia, then there was certainly no advantage for those individuals. It was just the same outcome. They would pay the foreign tax rate and get an exemption in Australia.
SUE LANNIN: Michael Dirkis says the Treasury has overestimated the money that will be raised. He thinks it will put off people wanting to work overseas on short placements, such as academics.
MICHAEL DIRKIS: The measures don’t just limit itself to $85,000. It applies to anyone who earns income overseas. And so therefore it will apply to your backpackers; it will apply to people, to students undertaking gap years. They will now have to lodge not only tax returns in those countries that they work but also an Australian tax return and all of those complications that occur once you’re dealing with overseas income.
SUE LANNIN: A senate committee has recommended changes to the bill including avoiding the double taxation of fringe benefits such as housing.
Stephen Coakley again.
STEPHEN COAKLEY: The senate committee’s report has encouraged Treasury to deal with the fringe benefits issue which is welcomed but I think there are still some concerns that clients’ costs will remain high.
Source: RAdio Australia
