The Best Expatriate Tax Advantages in Australia – LAFHA

If you’re moving to Australia as an expat to work, there are a number of very valuable tax opportunities you should be aware of including LAFHA.

Tax benefits for ex patriots can include Living Away From Home Allowances (LAFHA) and a significant change in the Australian tax law that has removed taxation on earnings that you may still accrue outside of Australia.

There are some very specific things that can save expats thousands of dollars, and too often they are not being advised of them.

If you are coming to Australia on a 457 visa you will have to lodge an income tax return.  In fact anybody in Australia who earns more than $A6,000 dollars is required to lodge a tax return.

This applies even though your employer has deducted income tax from your salary.  Most Australian employees receive a small refund but if you have Australian investment income this could mean that you need to pay extra tax to cover this additional income.


The Australian tax year starts on July 1 and ends on June 30.   In July your employer will issue you with a PAYG (Pay As You Go) statement which shows how much income you have earned and what tax has been remitted to the tax office on your behalf.

Armed with your PAYG statements you can go on-line and visit the Australian Taxation Office website (www.ato.gov.au ) to complete a tax return.

Alternatively, you can use the services of a good tax agent. However, unless you are registered with a tax agent you are expected have your tax return lodged by October 31 for the previous period of July 1 to June 30.


What is LAFHA and how can it benefit you?

The best opportunity for an expat is the benefit available to expats who come to Australia on a 457 Visa to obtain “a living away from home allowance” or “LAFHA” from their employers in Australia.

Living away from home allowance is intended to compensate people who have moved from their permanent residence to work and live in another environment.


The Australian Taxation Office allows $206 for food per adult per week.  While this might not seem much the Australian tax system also allows a “reasonable” allowance for rent for those who have relocated.

The question is – what is reasonable?

The Australian Taxation Office does not stipulate what is reasonable but it is an allowance which would provide an equivalent standard to the accommodation the expat would have in his home country.


Provided the employer takes off $42 for the food per week and gives the employee $164 instead of $206 for food, and provides a rental allowance that is “reasonable”, the living away from home allowance is not taxed when given to the employee and importantly costs the employer nothing extra.


This is a real plus if you are coming to Australia. You get the money weekly in your pay packet but it is not taxed.  Unless the amount for rent is “unreasonable” there would be no tax to pay by an employer.  It is a win/win situation.


Many employers are not aware of the benefits which they can legally provide to an employee who has been re-located. If you are an expat on your way to our sunny shores make sure that it is in your contract before you take up employment in Australia.

The Australian Self Assessment tax system and computer monitoring

The Australian Taxation system works under what is called “self assessment”.  Self assessment means you are personally responsible for correctly reporting all your income and any expenses directly related to you earning that income.   That means you have to get it right!

To assist them to trap those not contributing their fair share of income tax the Australian Taxation Office has invested heavily in computer systems which do data checking and cross matching to catch tax cheats who are deliberately manipulating the system for their own ends.

As an example the ATO computers are able to identify taxpayers who understate the interest they have earned in Australia.

Like everybody else, Australians take a keen interest in whatever impacts their income or whatever can help them to legally reduce their tax  and receive a refund.

Among the many things which can cause you to be faced with paying more tax is interest income, dividends received from shares and selling an asset and making a capital gain.

Deductions and a change in the tax law for expats

Deductions, or costs you have paid, which would reduce your tax and help you get a refund, are anything that you pay for that directly assists you to earn your income.

This could include depreciation on your computer, payment for the internet or stationary but they can only be claimed if these costs are directly related to helping you with your work.

This is an area of expertise for Easy Tax.  We are specialists in helping expats understand their tax obligations in Australia.


From July 1 2006 the Australian Government no longer taxes those who are not permanent residents of Australia on investment income earned outside of Australia.


This is wonderful for those expats who leave behind their home and rent it out while they are on a visa working in Australia.  Although they may be taxable in their home country, they don’t have the onerous task of including their non Australian investments in their Australian tax returns.


This is an area few Australian accountants are aware of and Easy Tax can help you here.

If you find yourself in a position where you would like to benefit from LAFHA, and your potential Australian employer does not understand how it can benefit you and also cost him and yourself no extra tax, we can help guide you and your employer.

 

Take advantage of our small business accounting services during which we will help you to refine your needs and consider an accounting and tax planning solution for your business going forward… make an online enquiry today or call us on +61 2 9419 5322 and let us help you solve your accounting or tax problems.

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