Australia’s expat tax clarified

Australia’s Assistant Treasurer, Nick Sherry, issued a statement last week that was aimed at clarifying the new tax obligations for overseas nationals.

In a press release issued on the 1 April 2010, entitled “additional certainty for the taxation of overseas-based employees,” Sherry provided further information about the new taxation and how it would be administered.

Tax requirements for Australians overseas

In the July 2009 budget the Section 23AG exemption, which had previously allowed Australian expats to live overseas without paying tax at home, was abolished. It was anticipated that placing an additional tax on these expatriates would increase tax revenue in their home country by approximately $225m a year.

Under the new laws Australian citizens living overseas will be required to pay normal Australian tax regardless of whether or not they have entered Australia during the tax year. Expats who can prove they have paid tax overseas will be required to make up any positive difference between the tax rate in their home country and that of their host country. This means that Australian expatriates living in low tax countries will no longer benefit from earning in a low tax environment.

The new tax laws have not been welcomed by Australians living abroad and there are real fears that the removal of tax benefits for those agreeing to take overseas positions may lead to a dearth in Australian’s willing to take overseas postings offered by Australian businesses. In addition to this, there is a great deal of evidence that indicates that the administration processes associated with implementing and controlling the new tax laws will actually cost the ATO more than they will earn through the new taxation.

Additional information issued last week

In the press statement issued last week Sherry informed Australian citizens living abroad on a short term basis that they wouldn’t be required to file a foreign tax return provided that they retained pay slips pertaining to their short work period abroad and filed them with their usual tax return: “I can confirm today that these taxpayers will not be required to lodge a foreign tax return to demonstrate and claim amounts of foreign tax paid. All they will be required to do is to keep their normal pay slips, assuming they identify amounts withheld, and under our self-assessment regime these pay slips will only need to be provided if the Tax Office undertakes an audit,” the Assistant Treasurer said.

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