Friday, 5 June 2009

Double tax plan trouble for Australian government

Article from The Australian, 3 June '09

In a announcement during the 2009 Australian budget, Aussies were told that from July 1, if they worked overseas for more than 90 days they will be required to pay both foreign and Australian income tax, but will be able to claim a credit for the overseas tax.

Given the meagre information supplied during the Budget, the extrapolation was that UAE-based Aussies would be liable for Australian tax on all money earnt here. Not surprisingly, there was panic with a capital P amongst the Aussie expats in the tax free areas of the Middle East and no doubt elsewhere.

I've been told that the tax liability is only for Australian resident employees who work overseas on short term contracts, rather than the non-resident citizens who work in another country long term. However, the distinction isn't made clear in this article and still doesn't seem to have been addressed by the government. Advice received from professional sources in Australia still varies and the Income Tax and Assessment Act 1936 has been top of the reading list for a lot of people who are wrestling with the ATO's definition of "resident" and "non-resident". (Good luck with that, I think you are what the ATO decides you are, which could be a worry down the track.....)

WAYNE Swan is facing another business backlash, particularly from resources and infrastructure companies, over a surprise $675million budget tax hit on overseas workers.

Anger over the measure comes after the Treasurer was forced to admit mistakes were made in the Rudd Government's crackdown on employee share plans, which caused numerous companies to suspend or review their schemes.

From July 1, people working overseas for more than 90 days will be required to pay both foreign and Australian income tax, but will be able to claim a credit for the overseas tax.

The change, introduced with no warning or transitional arrangements, has affected those currently overseas who left on the understanding they would be exempt from Australian income tax. Many businesses will be forced to foot the tax bill so employees are not left out of pocket.
Companies will also be hit with fringe benefits tax for benefits such as flights back to Australia, telephones and cars, used to entice employees to work on overseas projects.

Australian Mines and Metals Association spokeswoman Minna Knight said the resources sector would press the Government to address its concerns. She said the new rules would have a direct impact on remuneration, recruitment and retention of workers.

"Employers will face increased costs at a time when commodity prices are falling," she said.
Institute of Chartered Accountants tax counsel Yasser El-Ansary, who has already raised concerns with Mr Swan's office, said the changes would hit companies with fixed-price contracts and make businesses less inclined to send workers overseas.

He said the Government should have exempted workers on existing contracts.
PricewaterhouseCoopers partner Warren Dick said many engineering, mining and construction clients had raised concerns about the changes.

"This sort of issue impacts the West Australian market more than any other," he said.
Mr Dick called for changes to ensure overseas benefits were not subject to FBT.

Engineering services company Lycopodium, which has workers in Africa and Asia, said the changes will cost it about $350,000 a month.

The company pleaded with Kevin Rudd and Treasury two weeks ago to reconsider the changes, arguing they would hurt the business in a downturn.

"This is money the company's going to have to shell out," said Lycopodium's chief financial officer Keith Bakker.

Mr Bakker said about 100 of the company's 500 workers were offshore at one time. Although the company liked to send skilled Australians to work overseas, in the long term it have to hire local workers to be competitive.

Mark Hughes, chief financial officer of mining services company Ausdrill, said the changes would also have a major cash-flow impact, as business would be forced to pay the full amount of witholding tax in Australia.

It would be an administrative nightmare to get tax receipts from countries like Ghana, Mali and Tanzania to claim a tax credit from the Australian Taxation Office.

"I don't think they've fully understood what they've let loose," he said.

The changes will also hurt finance companies and law firms with overseas offices.

Allens Arthur Robinson corporate affairs director Chris Fogarty said the law firm would find it more difficult to send lawyers to its Asian offices to work on short-term projects and to give younger lawyers overseas experience.


  1. The panic wasn't justified, people didn't read it carefully enough - saw the words 'working overseas' and 'tax' and panicked without reading what it actuelly said!

    I thought it was clear from the beginning and I don't understand the apparent confusion. It didn't include expats living overseas, just those who are resident in Oz. and work overseas on a short-term contract.

  2. No it didnt say that mate, you read it properly and not only this article, look at what else is comming from the tax department to date.
    We who are working overseas are spending our money back in Australia, so what if we are not getting taxed at the ozzy rate which is one of the highest in the world, who wants to be taxed at those rates for " Nation Building " Nation building....youve got to come up with someting better than that Rudd!!!
    Rudd will be effecting more people and companies than he knows about, I totally agree with people like Mr Bakker and Mr Swan.
    Some people take these jobs overseas to get them selves and there families out of debt in Austrlia, we all no that the average Australian is in debt and struggling I dont care what the statistics say The average Australian is struggling Mr Rudd.
    Alot of us who take these overseas jobs do it for the money and because its tax free or low tax, but we also have to be away from our families for long periods of time, maybe we are not living in the greatest conditions either, but we do it to get ahead and we the avereage Australian are not getting ahead, we are either going backwards slowly or just surviving!
    So give us a break Rudd and let us just once while we are on this planet to not have to stress every day about how we are going to have to pay our bills and weither the Tax Department are going to take our very hard earnt money away from us AGAIN!!

    MR Grumpy

  3. Anon, a follow up in The Australian supports what I said:
    Wayne Swan's biggest move was the tax crackdown on temporary expatriate workers, which is only now being closely examined...The Treasurer said on budget night on May 12 that the abolition of tax concession 23AG, which excused expats from paying Australian tax if they were overseas for a period between 91 days and two years...

  4. One more comment on the subject. The Treasury made this announcement on May 12:

    The proposed amendments will affect some individuals who are residents of Australia for income tax purposes. They will not affect all Australian citizens working outside Australia. That is, they will not affect Australian citizens who are not residents of Australia for tax purposes.