02/07/2009 - 00:00

Expat tax-take change to shake-up business

02/07/2009 - 00:00

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LOCAL engineering firms are already planning to cut the number of expatriates employed at their overseas operations due to new tax laws that will significantly increase the annual tax bill of Australians working overseas.

LOCAL engineering firms are already planning to cut the number of expatriates employed at their overseas operations due to new tax laws that will significantly increase the annual tax bill of Australians working overseas.

The new regulations take effect this week and will mean up to 20,000 Australians working overseas and paying foreign income tax will no longer be eligible for an income tax exemption in Australia. It is estimated the changes will increase their annual tax bill by an average of $11,000 and deliver an extra $675 million to Treasury over three years.

The engineering and contracting sector has been highly critical, arguing the changes pose a major threat to the competitiveness of Australian firms operating overseas and will inevitably force local companies to hire fewer expatriates.

Speaking at an engineering roundtable hosted by RSM Bird Cameron, Forge Group managing director Peter Hutchinson said expatriates would effectively cost his firm 30 per cent more to employ if they were to be compensated for the changes.

This left Forge, which currently has a number of construction contracts in Africa, with little choice but to cut its expatriate ratio to remain competitive.

"What we will do as far as our business model is concerned is ... we will take 30 per cent less expats next time around," he said.

"It's a real threat - we pay our boys $50 an hour and the South Africans pay theirs 50 rand an hour, so already we've got a problem ... without this as an issue."

Lycopodium executive director Rod Leonard said his company, which is also highly active in Africa, was making similar plans.

"We are going to do the same thing - we are going to use our Manila office to the exclusion of Australians," he said.

Mr Leonard said Canberra's short sightedness would not only make it harder for Australian firms to compete internationally, but would also have a huge multiplier effect.

"For example, if we are fortunate to win an offshore job, we ... tend to favour Australian suppliers so that they get the spin-off," he said. "So now, not only are we not going to get the job, but it's going to get fabricated offshore as well."

RSM Bird Cameron Tax Partner Rami Brass said it appeared Treasury had simply ignored or not understood the 140 submissions from industry, and refused to acknowledge that its short-term decision would have lasting adverse implications.

"Their view was that it's not an issue - and that (industry) has had six weeks to sort it out," he said.

Consequently, local firms were left with little choice but to compensate expatriate workers for the increased tax, hire people from outside Australia or encourage their expatriates to relocate to friendlier tax regimes such as Singapore.

Association of Consulting Engineers of Australia chief Megan Motto said the organisation would continue to push for scrapping of the laws, but was now concentrating on helping members cope with the immediate fall-out of the change.

 

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