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Australian Companies Need to Do More For Their Expat Employees

Australian Companies Need to Do More For Their Expat Employees

 

In today’s rapidly changing landscape Australian companies need to do more for their Australian expat employees. In the past the Human Resources and Global Mobility departments of Australian companies had the resources and budgets to provide their globally mobile employees with the resources to ensure that an expatriation and relocation was a successful one however these days budgets have been shrunk and these departments have been entrusted with doing more with less.

As a result of these pressures when an employee is approached to relocate overseas more often than not the onus is placed on the employee to do their own research and determine not only whether the relocation is in their best interest (from a personal and career point of view) but also what the financial ramifications may be. Unfortunately determining the financial ramifications of such a move will be placed at the bottom of the list, with soon to be Australian expats placing more importance on where the kids will go to school and where they may live.

Australian expats will often approach us after they have moved overseas (sometimes 12-18 months after relocating) and quite often the trigger to get in touch with us is that they have found out that their perception of the financial ramifications of becoming an expat is different to the reality.

In the past when you became an Australian expat you essentially disappeared off the radar from an Australian tax and financial oversight point of view only to reappear when you returned to Australia many years later. In today’s modern age that unfortunately is not the case and the expat world is becoming smaller every day.

We have outlined below only a brief list of the many issues that Australian expats are facing on a daily basis and why Australian companies need to do more for their expat employees:

  • Australian Property – In the 2017 Australian Federal Budget the Australian government outlined their proposal to remove the Main Residence Exemption (MRE) for Australian expats that hold Australian property as a non-resident. How does this affect Australian companies with expat employees? Imagine if you relocated an employee to another country and they decided to sell their former principal place of residence (PPoR) after relocating without seeking the appropriate advice? Potentially they will have to pay capital gains tax (CGT) for the whole period that they have owned that residence, not just for the time that they were away. That would certainly leave a sour taste in their mouth and, with potentially a very large tax bill being levied, may jeopardise their relocation and in turn cost your company a lot of time and effort in either repatriating a failed relocation or placating an angry employee.
  • Australian Superannuation – With the increasing popularity of Australians setting up Self Managed Superannuation Funds (SMSF’s) unless your employee is a student of Superannuation law they may not realise that when they relocate overseas they may breach one of the three conditions that a superannuation fund has to meet in order for it to be considered a complying Australian Superannuation Fund (ASF) – the Central Management and Control (CM&C) test. The ATO says the Central Management and Control (CMC) of a super fund involves a focus on the who, when and where the strategic and high level decision making processes and activities of the fund are made from. If this is overseas, and the SMSF is deemed as non-compliant, then that can have disastrous tax implications on the fund and in turn lead to very large financial penalties. The employee also may feel the need to continue with their superannuation contributions should they not receive ongoing employer contributions as part of the expat package. If they were to contribute to their SMSF whilst they are overseas then this may trigger the Active Member Test, which will also deem the SMSF as non-compliant.
  • US Based Australian Expats – When Australia signed up to the Foreign Account Tax Compliance ACT (FATCA) with the United States in 2014 it opened up a new layer of issues that Australian expats in the United States will have to face. With the FATCA agreement if you are a resident of the United States (you don’t have to be a green card holder or citizen of the US) your worldwide assets become taxable, and that includes all of your Australian assets (shares, property and superannuation). There is a Double Taxation Agreement (DTA) between the countries however it does not go far enough to provide Australian expats with the protection that they need. For example, did you know that your Australian employees in the United States could be taxed by the IRS on the income and capital gains that occur in their superannuation accounts? That’s right, the IRS does not recognise the preservation nature of Australian super and actually classifies them as a foreign trust. Do your employees own Australian managed funds or Australian domiciled Exchange Traded Funds (ETF’s)? If they do they maybe deemed as a Passive Foreign Investment Company (PFIC) and this will attract punitive taxes in the United States, including being taxed on any capital gains at the top US personal marginal tax rate (regardless of their marginal tax rate) as well as retrospective tax and interest costs which may result in tax rate of up to 100%.

The above list is only the tip of the iceberg when it comes to financial issues that Australian expats face on a daily basis and the tax laws across the world are tightening up. We now have the introduction of the Common Reporting Standard (CRS) of which Australia, along with over 100 countries globally, is a signatory to. This involves that automatic exchange of tax and financial information between governments on a global level. Previously financial compliance was always good practice with Australian expats but now it is mandatory and those Australian expats who haven’t been caught in the past will more than likely be swept up in the increasing vigilance of governments around the world.

Atlas Wealth Management has had the pleasure of working with Australian companies to prepare their employees for a relocation overseas however with global mobility on the increase too often we are seeing more and more employees accepting roles overseas without receiving the appropriate advice. We are proud of the awards that we have been nominated for when working with Australian companies but there is so much more to be done and that change can only come from inside of the company by making the decision to ensure that your employees are fully informed.

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