Find out the tax advantages of working in Australia as an expat
Tax Benefits for Expatriates
Tax benefits for expatriates can include the Living Away From Home Allowance (LAFHA) and also a significant change in the Australian tax law that has removed taxation for expatriates on earnings that they may still accrue outside of Australia.
Unfortunately, these can save expats thousands of dollars, and too often they are not being advised of them.
If you are coming to Australia on a 457 visa you will have to lodge an income tax return. In fact anybody in Australia who earns more than $AUS 6,000 dollars is required to lodge a tax return.
This applies even though your employer has deducted income tax from your salary. Most Australian employees receive a small refund but if you have Australian investment income this could mean that you need to pay extra tax to cover this additional income.
The Australian tax year starts on July 1 and ends on June 30. In July your employer will issue you with an annual PAYG (Pay As You Go) statement which shows how much income you have earned over the financial year and what tax has been remitted to the tax office on your behalf.
Armed with your PAYG statements you can use the services of a good expat tax agent (who understands your unique situation) to complete your return. Unless you are registered with a tax agent you are expected have your tax return lodged by October 31 for the previous period of July 1 to June 30. Persons registered with a tax agent have an extension until May 15 the next year to lodge this return.
What is LAFHA and how can it benefit you?
The best benefit open to an expat who comes to Australia on a 457 Visa to obtain “a living away from home allowance” or “LAFHA” from their employers in Australia.
The Living Away from Home Allowance is intended to compensate people who have moved temporarily from their usual place of residence for work. This means many employees moving to Australia for a work assignment could be eligible and thus be assisted with their accommodation and food expenses.
The Australian Taxation Office currently allows a tax exempt allowance of $191 for food per adult per week (FBT FY2012 figures). While this might not seem much the Australian tax system also allows a “reasonable” allowance for rent for those who have relocated.
The question is - what is reasonable?
The Australian Taxation Office does not stipulate what is reasonable but it is an allowance which would provide an equivalent standard to the accommodation the expat would have in their home country. If the employee was living in a 2 bedroom townhouse before coming to Australia, it would be reasonable to allow the rental cost for a 2 bedroom townhouse here in Australia. Its best to consult here with an accountant well versed in LAFHA to make sure you are claiming the right amount before proceeding.
Provided the employer pays only an amount that remains within the ATO guidelines, the Living Away from Home allowance is not taxed when given to the employee and importantly costs the employer nothing extra.
This is a real plus if you are coming to Australia. You get the money regularly in your pay packet but it is not taxed. Unless the amount for rent is “unreasonable” there would be no tax to pay by an employer. It is a win/win situation.
Many employers are not aware of the LAFHA and other benefits which they can legally provide to an employee who has been re-located. Some other examples can include travel, motel/hotel expenses, return flight costs, removalist expenses and school fees which are subject to special conditions.
If you are an expat on your way to our sunny shores make sure that LAFHA and relocation expenses are accounted for in your contract before you take up employment in Australia.
The Australian Self Assessment tax system and computer monitoring
The Australian Taxation system works under what is called “self assessment”. Self assessment means you are personally responsible for correctly reporting all your income and any expenses directly related to you earning that income. That means you have to get it right!
To assist them to trap those not contributing their fair share of income tax, the Australian Taxation Office has invested heavily in IT systems which do data checking and cross matching to catch tax cheats who are deliberately manipulating the system for their own ends.
As an example the ATO computers are able to identify taxpayers who understate the interest they have earned in Australia or misreport their employment income.
Like everybody else, Australians take a keen interest in whatever could decrease their income tax or whatever can help them to legally reduce their tax and receive a refund.
Additional things which can cause you to pay more tax are interest income, dividends received from shares and selling an asset and making a capital gain. If you are a temporary resident certain exemptions can be available to you.
Deductions and a change in the tax law for expats
Deductions, or costs you have paid which would reduce your tax and help you get a refund, are anything that you pay for that directly assists you to earn your income.
These deductible “work-related expenses” could include depreciation on your computer, payment for the internet or stationery, registration/licenses etc but these can only be claimed if these costs are directly related to helping you with your work.
Easy Tax are the professionals here and specialise in helping expats understand their tax obligations in Australia. We advise expats on how to maximise their deductions as well as report the only right income required in the Australian tax return.
From July 1 2006 the Australian Government no longer taxes those who are not permanent residents of Australia on investment income earned outside of Australia.
This is wonderful for those expats who leave behind their home and rent it out while they are on a visa working in Australia. Although they may be taxable in their home country, they don’t have the onerous task of including their non Australian investments in their Australian tax returns.
The intricacies of expat tax are an area few Australian accountants are aware of and Easy Tax can help you navigate with success through the Australian tax system.
If you find yourself in a position where you would like to benefit from LAFHA, claim relocation expenses and manage your tax return obligations as an expat please contact us at Easy Tax by going to our website at www.easytax.com.au
This information has been provided by:
Tel: +64 (0) 2 9419-5322
Fax: +64 (0) 2 9412-2237