No joy on expat tax

INDUSTRY groups have dismissed the Rudd government’s ‘clarification’ of new tax obligations on Australians working overseas as making little difference to the negative impact the changes have had on the competitiveness of Australian companies operating offshore.

Last July, the federal government scrapped rules allowing Australians who worked overseas for more than 90 days a year to claim a tax exemption for their offshore earnings.

The measures were expected to reap an extra $675 million for Treasury over three years, increasing the tax bills of 20,000 Australians working offshore by an average of $11,000 a year.

However, the move attracted widespread condemnation from industry, particularly in the resources and engineering sectors, which employ high relative numbers of expatriate workers at the overseas operations.

Industry’s primary concern was that the changes would make Australian employees more costly on overseas jobs, and give international competitors a significant cost advantage when tendering for work in foreign locations.

Some contractors estimate the changes have made Australian expatriates 30 per cent costlier to employ, and are now employing a greater proportion of lower cost, but similarly skilled, workers from other countries.

Last week, Assistant Treasurer Nick Sherry provided “additional clarity”, saying expatriates would now be able to claim a tax offset for tax paid overseas, provided they could prove that tax had been withheld from their foreign wages if audited. That proof could be as simple as retaining normal pay slips detailing the amount of tax withheld.

“This simple process will ensure that compliance costs are minimised, there will be no double taxation and that these Australian employees will get an offset for any foreign tax paid,” Senator Sherry said.

But industry groups said that did not address the fundamental problems created by the revised tax rules.

“(The regulations) still reduce the competitiveness of Australian firms working offshore because of the additional costs, and mean less opportunities for Australian firms to use highly qualified and skilled Australian staff on overseas jobs,” Megan Motto, of consulting engineers lobby Consult Australia, said.

In an advisory note to its clients this week, tax specialist RSM Bird Cameron noted: “whilst this announcement assists taxpayers with complying with their Australian tax requirements, it does little to improve the competitiveness of Australian-based employers tendering for overseas projects”.

Tax Institute senior tax counsel Robert Jeremenko said though the battle on the policy front had been fought and lost, he hoped Senator Sherry’s announcement would at least go some way to alleviating the compliance impacts of the Budget announcement.