Expats feel the tax sting in Australia

Expatriates arriving in or leaving Australia could be missing out on legitimate tax benefits and face unwanted regulatory attention by not researching the tax consequences of a move, an accounting firm has warned.

Outsourced accounting firm Lumina has cautioned that salary packaging, superannuation, retirement benefits and tax rulings of Australian assets are “taxation traps” for executives returning to Australia, and that not doing adequate research can lead to financial penalties.

John Williams, managing director of Lumina, said keeping up to date with regulatory changes and tax structures can result in large tax savings for expats, which employers wishing to absorb talent from abroad should take into account.

“Having to unravel tax regulation for temporary residents is a considerable barrier to employers considering employing overseas talent,” Williams said.

“Salaries must be packaged correctly before a contract is signed; otherwise it can be too late for expats to receive concessional treatment and exemption of benefits under fringe benefits (FBT) legislation.”

The firm said, by way of example, temporary Australian residents could achieve tax savings of $18,700 on a salary of $100,000 if correctly packaged.

“Many employers still do a salary packaging component in arrears — thinking that relocation expenses, relocation consultant fees and relocation transport, accommodation and flights come up after the deal is done,” Williams said.

“Employers often say it is just too complex to think about and ignore. However, this results in higher taxation for employees.”

Lumina urged executives to ensure they had a full understanding of the tax concessions they’re eligible for prior to structuring a contract and signing on the dotted line.

In addition, executives should consider the tax consequences on global assets and employee share acquisition schemes.

The firm also noted the many complexities expats face regarding their assets when leaving or arriving in Australia, particularly what “constitutes a taxable Australian asset”.

The firm said tough foreign investment fund rules apply to “tax Australian residents holding non-controlling interests in foreign companies or foreign trusts”.

“Australia’s tax laws can play a crucial role in determining how long an expatriate remains in the country.”

Williams said start-up businesses found it particularly difficult to deal with the living-away-from-home allowance expats are entitled to.

“This can be perplexing and expensive, particularly if the business gets it wrong,” he said.

Employers could face tax and penalties for relocation and living expenses reimbursements made to an employee.

Lumina urged executives to ensure they had a full understanding of the tax concessions they’re eligible for prior to structuring a contract and signing on the dotted line.

In addition, executives should consider the tax consequences on global assets and employee share acquisition schemes.