The 2012-13 Australian Federal Budget has resulted in a number of unfavourable changes which will impact the amount of tax payable by nonresidents that either work or invest in Australia. Whilst the Federal Government has justified these changes as either aligning Australia’s tax treatment with other OECD countries or reducing tax concessions considered to be too generous, the impact in terms of attracting investment and highly skilled labor into Australia is likely to be negative. The proposed changes are as follows:

Limiting the Living Away from Home Allowance Tax Concessions for people on temporary visas

Changes to the payment of the tax-free living away from home allowance, will limit the tax concession to employees who maintain a home for their own use in Australia whilst they are living away from home. The tax concession will also be limited to a maximum period of 12 months. Note exceptions to this rule apply to:
– ”fly in fly out” arrangements as these will not be subject to the 12 month limit; and
– Note that where arrangements are currently in place these rules do not apply until 30 June 2014.

Non-resident tax rates to increase

Personal marginal tax rates will increase for non-residents as follows:

From 1 July 2012 to 30 June 2014

Income ($)  Tax Rate (%)
0 – 80,000  32.5%
80,001 – 180,000  37%
180,000+  45%

From 1 July 2014

Income ($)  Tax Rate (%)
0 – 80,000  33%
80,001 – 180,000  37%
180,000+  45%

Capital Gains Tax Benefits removed for Non-Residents

Under Australia’s capital gains tax rules, tax was only payable on 50% of the capital gain on assets held for a period of more than 12 months. The measures announced in the Federal Budget remove this concession for non-residents meaning that tax will be payable on the full amount of the capital gain. This measure applies from 8 May 2012.

Increase in Withholding Tax Rate for Managed Investment Trusts

The withholding tax rate for Managed Investment Trusts will increase from 7.5% to 15%. This measure will apply from 1 July 2013. Whilst this restores the withholding tax rate to its previous the level the increase will obviously impact the attractiveness for foreign investors to invest in Australia through these investment structures.

Should you want to know more about how these measures may impact you or your clients please contact Murray Howlett of our Taxation Services Division on +61 7 3023 1300.