issue 7.6
remuneration
Beware
the taxman
Effective salary packaging is a key consideration for returning expats, yet many organisations ignore tax and regulatory requirements. John Williams provides some tips on how to do it better
T
he beer may be cold and the summer hot but, there is more to be wary of than mossie bites and sunburn for expatriates. Salary packaging, superannuation, retirement benefits and tax rulings of Australian assets are the taxation traps for the influx of unwary executives relocating to Australia this year. By keeping up-to-date with regulatory changes and myriad tax structures, expatriates can achieve large tax savings This should be taken into consideration when employers try to absorb talent from abroad, according to John Williams, managing director of outsourced accounting firm Lumina. “Having to unravel tax regulations for temporary residents is a considerable barrier to employers considering employing overseas talent,” Williams says. “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 tax [FBT] legislation.” As a guide, temporary Australian residents can achieve tax savings of $18,700 on an annual salary of $100,000 if it is correctly packaged upfront. A sample from Lumina’s outsourced accountancy clients illustrates the considerable net after tax difference of $46,500 on a salary of $400,000 and a whopping
$152,446 saving on a salary package of one million dollars (see Table 1). “Many employers still do a salary packaging component in arrears, thinking that relocation expenses and relocation consultant fees come up after the deal is done. Employers often just say it is too complex and ignore it. However, this results in higher taxation for employees,” Williams explains. The worst-case scenario for many employers is unwanted regulatory attention, such as the Phillip Smiles ‘Nannygate’ case, which saw the former Liberal MP frontbencher fined $30,000 for claiming his children’s nannies as tax deductions. He was later acquitted on appeal. Even Kevin Rudd is confused when it comes to nannies, and had to reimburse taxpayers for many hours staff at The Lodge spent looking after his teenage son in early 2008. “In Singapore, South Africa and India, it is common for nannies to be included as part of a salary package – so when people move to Australia it’s not uncommon for them to be caught out by differences in tax regulations,” Williams says. We have seen cases of employees immigrating to Australia and missing out on legitimate benefits as they have not considered these benefits until after the ink is dry. Expatriates arriving in, or leaving Australia, confront many issues regarding what constitutes a taxable Australian asset. The government applies tough foreign investment fund rules to tax Australian residents holding non-controlling interests in foreign companies or foreign trusts. These rules mean income tax can be applied to the increase in value of these holdings. Australia’s tax laws can play a crucial role in determining how long an expatriate remains in the country. A foreigner a becomes resident in Australia for tax purposes if they remain in the country for more than 183 days of any tax year, or is domiciled here. One of the most complicated areas that start-up businesses must grapple with in taking on expatriates is the living-awayfrom-home allowance. “Every start-up business finds this one difficult to deal with,” says Williams. “This can be perplexing and expensive, particularly if the business gets it wrong.” Employers could be charged tax and penalties for a payment made to an employee for relocation and living expenses. However, despite the confusing nature of Australia’s tax regime for expatriates, the benefits to businesses and the economy in general of bringing skilled people in from overseas