Expatriate tax ebook - Australia

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes
Deductions against income

Charge to tax
Subject to any double taxation agreements, Australian tax is imposed on assessable income. A resident of Australia is taxed on worldwide income for the period of residency, whilst non-residents are taxed on Australian sourced income only.

Residence
Australian income tax law contains a formal definition of residence. Each case must be determined on its own facts and circumstances. The Australian Taxation Office (ATO) looks at a number of factors in making a determination.

You will be a tax resident of Australia when your behaviour over a considerable period of time has the degree of continuity, routine or habit that is consistent with residing in Australia. Six months is considered to be a ‘considerable’ time for these purposes.
 
If you are migrating to Australia, you are normally regarded as a tax resident as soon as you arrive. If you are only in Australia for a short time, it is likely you will be considered a non-resident and will hence lose the benefit of the two lowest rate thresholds.

Income from employment
The definition of assessable income for employment purposes includes wages, salaries, bonuses, gratuities and allowances if these are received as a reward for services. Employers deduct Pay-As-You-Go (PAYG) from salary and wages paid and remit this withholding to the Australian tax authority generally on a monthly basis. This PAYG forms a credit at the time of lodgement of the tax return.

Shares and options received in respect of employment and at a discount may also be included in assessable income.

Source of employment
Income from employment ordinarily has its source in the place in which the services are performed. However, consideration may also need to be given to such factors as the place of negotiation.
 
Benefits (in kind)
Employers are liable to fringe benefits tax (FBT) on benefits ‘other than salary or wages’ provided to expatriates or their associates. Specific statutory valuation rules apply for each type of benefit and a gross-up is applied to the aggregate value. A flat tax (equivalent to the top marginal rate of income tax plus Medicare Levy) of 46.5% applies to the grossed-up value of benefits provided, although some benefits are exempt from fringe benefit tax.

Expatriate concessions
Expatriates who are required to live away from their usual place of residence are entitled to various benefits in kind without fringe benefit tax being payable. Appropriate structuring of such benefits as part of the compensation package can result in significant tax savings. A general exemption from tax on foreign source business and investment income (including gains from foreign assets and from assests that are not taxable Australian property) is available to expatriates who hold temporary visas, subject to certain criteria. Income from personal exertion (such as salaries and wages) is not granted relief under this particular exemption. However, relief may be available for this particular foreign sourced income under more specific exemption provisions.

Relief for foreign taxes
Where an amount of foreign income that has been taxed in a foreign jurisdiction is also assessable in Australia, a credit, subject to certain limitations, is provided against the Australian tax liability.

Deductions against income
Losses and outgoings are allowable as tax deductions to the extent to which they are incurred in the production of assessable income or otherwise specifically legislated as being deductible. However, items of a capital or private and domestic nature are not deductible although certain capital items may be eligible to be deducted over time via depreciation.

Information about Australia:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities