Relocating your employees to Australia – Should you be paying for their expenses?

If you are considering sending your employee to Australia for a project, there is an innate understanding that you, as an employer, will be covering all the additional costs related to their temporary relocation.

But have you thought about Australia’s complex tax consequences?

Before striking that agreement, there are a few things you need to know.

Fringe benefits

A Fringe Benefit is a perk offered to employees and/or their families and is separate from salaries, wages or cash. Employers are increasingly recognising the many advantages of offering competitive fringe benefits, including attracting a higher calibre of employees, increased worth ethic, motivation and loyalty, and enhanced job satisfaction.

Fringe benefits provided to a relocated employee and their family often include:

  • Airfares to Australia
  • Visa applications and associated costs
  • Accommodation in Australia (the employee would be responsible for maintaining their home in the country of origin)
  • Motor Vehicle leases in Australia
  • Insurance
  • School fees for dependants

Some additional benefits are a standard offering in many countries, including:

  • Health insurance
  • Childcare
  • Loans

Fringe benefits tax

Australia has a nasty tax called FBT (Fringe Benefits Tax). FBT is imposed on employers when they provide non-cash benefits to their employees.

The computations are complex, resulting generally in tax imposed at the highest marginal tax bracket (47%). However, FBT presents itself as a tax of 89% on the value of the benefit you provide to the employee (98% if GST was claimed).

This can be offset by claiming the GST input tax credit, as well as income tax deductions for both the expense, and the FBT itself (if eligible).

Companies not taxed in Australia will however bear the full 89%/98% rate!

Travel v Relocation

The reimbursement or payment of costs while the employee is travelling is not subject to FBT. However, determining when an employee is travelling for business, versus relocation (temporally or permanently) is a very grey area that Australian tax law has been struggling with for many decades.

After an original succinct ruling in 1986, and an attempt at clarification in 2017 through a draft ruling, the ATO has recently released more guidance on their view of how the legislation operates.

Unfortunately, this ruling does not offer good news for most employers. Under the new guidelines, an employee with 21 days of continuous presence in Australia (or 90 days of aggregated presence in the year) will trigger FBT implications for their employer.

With a 47% additional price tag on the cost of these benefits (or even 89%/98%), all businesses sending staff to Australia should consider this issue early on.

Help!

These complex issues require planning and structure to ensure tax, compliance and overall costs are appropriately balanced. But don’t worry – we’re here to help!

Accru regularly assists international groups in setting up activities in Australia, for both short and long-term projects. We have an excellent reputation in this space and can guide you through the pitfalls of FBT.

Contact an Accru advisor today for advice prior to sending your employees to our golden shores.

About the Author
Will has over a decade of experience in chartered accounting practice with specialised expertise in taxation consulting. Working with both large international clients and small-to-medium businesses across a wide range of industries, including IT consulting, construction and childcare, he is known for his excellent analytical skills and ability to utilise business intelligence software.
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