What expatriate employees should consider salary-sacrificing

A number of my clients have brought over employees from overseas. They want to know if there is anything they can do to pay these employees in a tax-effective manner.

Since October 2012 it has been far more difficult for these employees to be paid a living away from home allowance in a tax-effective manner. This is because, in order to access favourable tax treatment, the employee must now, amongst other requirements, maintain a home in Australia at which they usually reside.

However there are still a number of other tax-effective benefits that such employees can receive. This article will outline some of these benefits which an employer could consider providing.

EXEMPT BENEFITS

Relocation consultant costs

A relocation consultant may provide services such as obtaining removalist quotes, finding accommodation, negotiating leases, providing information about transportation to the new location and providing information about education and community services at the new location.

The costs of such a consultant would be exempt from FBT if they were incurred solely because the employee is relocating, whether temporarily or permanently, their place of residence in order to perform their employment duties

Removal and/or storage of household effects

This exemption covers transport, packing, unpacking and insurance of tangible personal property.

To be exempt from FBT, the costs must occur within 12 months of commencing duties at the new place of employment and must arise solely because the employee is relocating, whether temporarily or permanently, their place of residence in order to perform their employment duties.

Sale or acquisition of dwelling as a result of relocation

This exemption covers things like stamp duty, advertising, legal fees, agent’s services, discharge of a mortgage, borrowing expenses and other similar matters. However it would not include loan repayments, loan service fees, insurance or rates.

To be exempt, the sale of the old dwelling must be within two years of the employee commencing duties and the purchase of the new dwelling must be within four years. Furthermore, the costs must arise solely because the employee is required to change their usual place of residence to perform employment duties.

Connection or re-connection of certain utilities

This covers connection and re-connection of telephone and re-connection of gas or electricity.

These costs must be incurred within 12 months of the employee changing their residence. Furthermore, they must be incurred solely because the employee is required to live away from home or change their usual place of residence in order to perform their employment duties

Relocation transport

This exemption covers transport incurred solely because the employee is required to live away from their usual place of residence to perform their employment duties. It also extends to meals and accommodation on the journey (e.g. stopovers) as well as accident insurance, airport or departure taxes, passenger movement charge, a passport, a visa or a vaccination or any similar matter such as residency application costs and immigration agent fees.

This exemption can be very broad. It covers both the trip to Australia and the return journey. It would also cover a trip to visit Australia in order to find suitable accommodation before the secondment and/or a visit back to the employee’s usual residence to arrange the removal of tenants, making repairs or having utilities reconnected before the employee returns.

Compassionate travel

This exemption is for employees who, unfortunately, have a close relative (a parent, parent-in-law, spouse or child) who is seriously ill or has passed away. The transport, as well as meals and accommodation on the journey, incurred solely because to visit the relative or attend their funeral is exempt from FBT. The exemption applies to employees who are travelling or living away from home in the course of performing their employment duties.

BENEFITS ELIGIBLE FOR A REDUCTION IN TAXABLE VALUE (i.e. LESS FBT WILL BE PAYABLE)

‘Overseas employees’

The following two concessions apply only to overseas employees. This is a defined term that includes somebody whose usual place of residence is outside of Australia but is temporarily posted to Australia for work. It could also include Australian employees posted overseas. In order to access the concessions the overseas posting must be for a period of not less than 28 days

Crucially the benefits are only subject to a reduction in taxable value where they are either;

  • Provided under an industrial agreement i.e. a registered Australian workplace agreement, an award or legislation or
  • It is customary in the employer’s industry to provide the same kind of benefit in similar circumstances. The ATO’s view is that such benefits do not need to be provided to a majority of employees in the industry but nor can it be ‘rare or unusual’.

Holiday transport for overseas employees

This exemption covers transport to the holiday destination, as well as accommodation and meals on route, for the employee, their spouse and children. It also covers accident insurance, airport or departure taxes, passport costs, visa fees, vaccinations or other similar costs in connection with the transport.

Other requirements include; the employee must be on holiday and not performing their employment duties and the holiday must be for three or more days. Note also that remote area holiday transport falls under a different provision.

If the travel is the most direct practicable route between the overseas employment place and the employee’s home country then the taxable value is reduced by 50%. If the travel does not meet the above conditions (e.g. it is not a trip home) then it is reduced by the lesser of 50% and the benchmark travel amount – broadly the usual cost of return travel between the overseas employment place and the employee’s usual place of residence (e.g. a return economy air fare).

Education of children of ‘overseas employees’

This includes school, college or university fees, additional tuition costs and other costs (e.g. a car fringe benefit) that are in respect of the full-time education of the employee’s child. The child must be under 25 years and if the the benefit is a property (e.g. a computer) or residual fringe benefit it must be solely for their education.

The taxable value is reduced to the extent that it relates to the period of the overseas posting or the academic period.

Like the exemption for holiday transport the education of children must be provided under an industrial agreement or is customary in the industry.

Temporary accommodation relating to relocation and temporary accommodation meals

This covers temporary accommodation and leasing of furniture and household goods in relation to such accommodation. Temporary accommodation may be a hotel, motel or guesthouse. It must be paid solely because the employee is required to change their usual place of residence to perform their employment duties

The temporary accommodation can be at the former locality because the employee’s home becomes unavailable or unsuitable (e.g. due to furniture removal, storage or other arrangements). In this case the taxable value is reduced to extent that it is attributable to the 21 day period leading up to the employee commencing work at the new locality

The temporary accommodation can also be at the new locality. To be eligible the employee must commence sustained and reasonable efforts to find long-term accommodation as soon as reasonably practicable. A reduction in taxable value is not available if the employee does not occupy a long-term home within four months of commencing work or does not give their employer a declaration that they are making sustained and reasonable efforts to purchase or lease long-term accommodation

Meals consumed at time when employee and their family were in temporary accommodation are only subject to FBT on the first $2 of each meal (adults and children 12 or over) or the first $1 (children under 12).

Disclaimer

This article is intended to be a general introduction to the topic for information purposes only. It does not constitute advice. I strongly urge you to seek professional advice that is tailored to your personal circumstances.

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