In May 2015, the Abbott Government announced that, as part of
its objectives for the Australian federal budget, it will reform
the tax residency rules by creating tougher rules and higher income
tax bills for the approximate 1.2 million temporary foreign
workers who are granted work rights in Australia each year.
Treasurer Joe Hockey announced that the reform is expected to raise
up to $540 million AUD in tax revenue over the next three
years. Without a doubt, this reform will impact many
temporary foreign workers who enter Australia to work on a
Under the current tax code, the tax treatment for expatriates
working in Australia turns on their classification as either (i)
residents of Australia; (ii) nonresidents of Australia; or (iii)
temporary residents. Nonresidents of Australia are taxed on
their Australian sourced income at nonresident tax rates, unless
they meet the residency requirements. Under the current
system, foreign workers are treated as Australian residents if they
have been in the country for more than six months, allowing them to
qualify for various tax benefits including tax-free income for all
income earned up to $18,200 AUD, as well as taxation at the lower
tax rate of 19% for any income between $18,201 up to $37,000
However, beginning July 1, 2016, foreign workers will be treated
as non-residents for tax purposes, regardless of the length of
their stay in Australia, which means that they will instead be
taxed at 32.5% from the first dollar of income earned up to an
$80,000 AUD threshold. Additionally, foreign workers will no
longer qualify for the low income tax offset. Therefore, in
comparative terms, the taxes paid by a temporary foreign worker who
makes $18,000 AUD in a year will go from zero to $5,850 AUD, and
the tax liability for a foreign worker who earns $37,000 AUD in a
year will increase from $3,572 AUD to $12,025 AUD.
These changes will impact thousands of companies that utilize
temporary working visas – such as the 457 or subclass 400
visas – to send temporary expatriate employees to Australia
in order to complete certain projects, conduct employee training or
meet short-term operational needs of the business. Companies
who utilize these or other similar short-term Australian visas to
send temporary workers to Australia on assignment will need to
consider the impact that these changes will have on employee tax
liabilities and whether a tax employee equalization strategy may be
Littler will provide further updates on this issue as the
Australian government releases more information regarding the
proposed tax changes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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