21 September, 2014

Australian Temporary Visas - Tax and Financial Hints

457 and Other Temporary Visas - Tax and Financial Hints

Australia has a complicated tax and social security system. Temporary residents on 457 visas, and other similar visas, 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 potentially 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 are 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 significantly increase take-home pay - however, changes introduced with effect from 1 October, 2012 effectively make it impossible for temporary residents (already resident or otherwise) to claim LAFHA - please read our commentary for further details. Relatively little tax planning opportunities remain available for temporary residents, although depending on their circumstances purchasing a car through a novated lease, rather than directly, can be tax effective.
 

2. Medicare Levy and Medicare Surcharge Levy

Most Australian taxpayers pay an additional 1.5% 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 a certain taxable income - see the payments tiers for the 2012/13 tax year in the table below. 

Tier
Taxpayer
Taxable Income and Reportable Fringe Benefits ($)
Surcharge Rate
1
Single
Couple/Families

84,001- 97,000
168,000 - 194,000

1.0%
2
Single
Couple/Families

97,001 - 130,000
194,001 - 260,000

1.25%
3
Single
Couple/Families

130,001 and over
260,001 and over

1.5%

 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 and this can be arranged online:   457 visa health insurance.

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've left the country if accompanied by amended tax return(s). The process is quite cumbersome, requiring an individual exemption application for each tax year and passport certification but we simplify the process as much as possible. Our fees for managing this process are 20% of any rebate, subject to a minimum $100 charge, and this includes transferring refunds to any nominated Australian or overseas bank account.
 

3. No Taxation of Offshore 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 tax. Many people see temporary 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, 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 - although the amount is subject to a 35% tax. Making a claim is simple and can be done online at the Australian Tax Office website.

 

Just a disappointing Postscript. In what we regard as a piece of politicking in advance of this September's scheduled election, the Government has announced a "crackdown" on the use of "illegitimate use of 457 visas". The Minister initially indicated that there were "over ten thousand illegitimate" 457 visas, and then later admitted this was a personal estimate. This is shades of the 1950's prompted by the Government's only significant remain support base - the traditional trade union movement. See an extract from the announcement below

"On 17 April 2013, the Australian Taxation Office (ATO) announced that it will request from the Department of Immigration and Citizenship (DIAC) names and addresses and other details of visa holders of Visa Subclasses 406, 410, 411, 415, 416, 417, 418, 419, 420, 421, 422, 423, 424, 426, 427, 428, 442, 457, 462, 570, 571, 572, 573, 574, 575, 576, 580 for the 2012, 2013 and 2014 income years.

These will be electronically matched and analysed with certain sections of ATO data holdings to identify potential fraud, and other non compliance with lodgment and payment obligations under taxation law. Records relating to approximately 1,000,000 individuals who were granted visas under the above subclasses will be matched."

The Government seems to have forgotten that many Temporary Residents will be required to pay the proposed National Disability Levy, but will not be able to claim on the fund - we are not sure that meets our definition of fairness.

 

 

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