Tax hit on employees working offshore
The tax advantage for Australian employees on secondment in lower taxed countries is gone as a result of tax changes effective from 1 July 2009.
Previously, Australian residents working offshore for more than 90 days would pay tax in the foreign country on their foreign earnings, which were exempt from tax in Australia. But now, Australia will also tax that income, providing a foreign tax offset for the tax paid overseas. This means that employees going to lesser taxed countries, such as Hong Kong and Singapore, will pay a “top up tax” in Australia. This will bring the amount of tax payable for these employees in line with employees who work in higher taxed countries, be that Australia or overseas, such as the UK.
For example, say an Australian employee earns the equivalent of $100,000 whilst working for nine months overseas and works in Australia for the remaining three months of the year, earning $30,000. The treatment under the old and new tax rules for an employee going to the UK or Singapore (after making a few assumptions) would look like this:
|Old rules||United Kingdom||Singapore|
|Foreign tax $AUS||$ 25,040||$ 15,000|
|Australian tax on $30,000 (based on average rate applicable to $130,000)||$ 8,955||$ 8,955|
|Total tax paid||$ 33,995||$ 23,995|
|Foreign tax in $AUS||$ 25,040||$ 15,000|
|Australian tax on $130,000||$ 38,800||$ 38,800|
|Foreign tax credit||$ 25,040||$ 15,000|
|Net Australian tax||$ 13,760||$ 23,800|
|Total tax paid||$ 38,800||$ 38,800|
|Extra tax paid under new rules||$ 4,805||$ 14,845|
A number of other issues also arise as a result of the changes:
For further information on how these changes could effect your business, contact your usual Grant Thornton advisor or the author of this article:
Author: Elizabeth Lucas, September 2009
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