Individuals on Temporary Work Visas - Tax and Financial Hints
Australia has a complicated tax and social security system. Temporary residents are often at a financial disadvantage because of their lack of familiarity with this system; the following notes summarise a number of areas which should be of interest and may save visa holders many thousands of dollars over the period of their time in Australia:
1. Living Away from Home Allowance (LAFHA)
LAFHA is an allowance paid by an employer which reduces your taxable income to compensate you for working on a short term basis away from your normal place of residence. Most temporary visa holders previously qualified for this allowance because they were intrinsically living away from their usual place of residence. There are two components to this allowance; food and accommodation.
The proper use of this allowance could previously increase take-home pay significantly - however, changes introduced with effect from 1 October, 2012 effectively made it impossible for temporary residents (already resident or otherwise) to claim LAFHA. We continue to mention it because we still receive inquiries regarding eligibility. In short, relatively few significant tax planning opportunities remain available for temporary residents, although purchasing a car through novated lease or salary sacrificing private education school fees can be tax effective.
2. Medicare Levy and Medicare Surcharge Levy
Most Australian taxpayers pay an additional 2% tax or Medicare Levy, in addition to income tax, to fund the national health system, Medicare. Further, a Medicare Levy Surcharge (MLS) is levied on payers of Australian tax who do not have private hospital cover and who earn above certain taxable income. The income thresholds used to calculate the MLS appear in the table below and will remain unchanged for six years from 2015–16 to 2022–23.
| Tier | Taxpayer |
Taxable Income and
Reportable Fringe Benefits ($) |
Surcharge Rate
|
| 0 | Single Couple/Families |
90,000 or less
180,000 or less |
0%
|
| 1 | Single Couple/Families |
90,001- 105,000
180,000 - 201,000 |
1.0%
|
| 2 | Single Couple/Families |
105,001 - 140,000
210,001 - 280,000 |
1.25%
|
| 3 | Single Couple/Families |
140,001 and over
280,001 and over |
1.50%
|
If you are a visa holder who does not qualify for Medicare coverage under the various reciprocal health care agreements then you can claim an exemption from this levy and a refund. Note that you must arrange suitable private health insurance as part of your visa requirement.
The refund can be quite significant and you can claim this at the end of each tax year in your tax return, or even once you have left the country, if you submit annual amended tax return(s). The process is quite cumbersome however, requiring an individual exemption application for each tax year and passport certification.
3. No Taxation of Offshore Passive Income
|
|
Most temporary residents are exempt from Australian taxation of non-employment income earned outside of Australia. Depending upon your finances, this can be extremely attractive - with interest and investment income earned offshore potentially not attracting any Australian tax. Many people see temporary resident visas as part of a progression to Australian permanent residency and citizenship; depending upon your finances and other family considerations it may not pay to rush this process. Again, this is very much an area where you should seek professional tax advice. |
4. Departing Australia Superannuation Payment (DASP)
While in Australia your employer will normally be required to make a contribution to a superannuation scheme - this is called your Superannuation Guarantee. You can claim the payments made by your employer into a superannuation fund or retirement savings account once you permanently leave Australia and your temporary resident visa has expired, or been cancelled - but tax will be payable at minimum rate of 35% on any taxable component, and a substantially higher rate may apply if you have been on a working holiday visa (WHV).
Making a DASP claim is simple and can be done online at the Australian Tax Office website.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.