Changes to 23AG expatriate rules

The tax rules for Australians working overseas are in for a shake up, and a change announced in the 12 May 2009 Federal Budget might affect you or your business.

Under section 23AG of the existing law, residents working overseas for a continuous period of 91 days or more are in most cases exempt from tax on their wages if taxed on those wages in the overseas country. In many cases, the tax in the overseas country is less than in Australia, so there is currently an 'advantage' for the employee (or employer if there is tax equalisation).

The Budget change (proposed from 1 July 2009) will repeal section 23AG in most cases. Instead those wages will be taxable in Australia, with a foreign tax offset/credit then being available for tax paid by the employee in the overseas country.

The repeal of section 23AG might also result in fringe benefits which are provided to the employee whilst overseas now falling within Australia's FBT rules, whereas this would not have been the case when section 23AG applied. Most other countries tax such benefits as income to the employee in the overseas country. Levying FBT on the employer could have a double taxation impact.

This proposed change requires employers to urgently review their Outbound Expat policy, remuneration strategy, and overseas project costings. Affected individuals should also review their personal affairs.

Links to Treasury announcements on this measure are:

http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/066.htm&pageID=003&min=wms&Year=&DocType=0

http://treasury.gov.au/contentitem.asp?NavId=002&ContentID=1538

If you would like any further information regarding this issue, please contact your usual Grant Thornton representative.






Author: Paul Banister, May 2009

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