Understanding Australia’s tax concessions to attract overseas talent

| September 8, 2021

The pandemic rollercoaster is still tumbling along, creating upheaval and economic disasters across the world. In its wake, countries are scrambling to recover, as can be seen from Australia’s 2021-22 Federal Budget, which was presented recently by Treasurer Josh Frydenberg.

As was apparent in the presentation of this year’s budget, Australia is focused on attracting and retaining the world’s “best and brightest” talent, while at the same time, modernising the country’s tax system, which remained unchanged since 1936. Thus, an update was very much in order, and welcome too, for easier understanding and application of tax laws, following over 80 years of determining cases according to case law.

The result was a 135-page report prepared by Australia’s Board of Taxation, titled “Reforming Individual Tax Residency Rules – a model for modernization, March 2019.” By modernising tax residency rules, Australia hoped to lure international business leaders to strengthen Australia’s pandemic recovery efforts. In particular, there is a strikingly clear interpretation of individual tax residency rules targeting people dealing with complicated tax systems like in the US, and to ensure tax reduction strategies for high income earners.

Moreover, by modernising Australia’s individual tax residency rules, the Australian government intends to make the country stand out as an irresistible economic option.

For instance, on the recommendation of Australia’s Board of Taxation, the budget proposed replacing Australia’s outdated tax residency rules for individuals, with a simple “bright line” test which verifies if a person has lived in Australia for 183 days during the tax year under consideration. If so, that person is considered an Australian tax resident. The year under consideration includes the time between 1 July and 30 June.

On the other hand, if an individual does not qualify for consideration as an Australian tax resident according to this primary test, there are secondary tests which combine objective criteria like an individual’s right to permanent residency in Australia, an individual’s accommodation in Australia, if the family already lives in Australia, or if the individual has economic connections in Australia.

These secondary tests will net in most expatriates if they stay in Australia for over 45 days during the Australian financial year, including through business travel.

There are also new rules for Australian tax residents who are permanently leaving Australia or leaving for overseas employment.

They will be considered non-residents of Australia for tax purposes if they have lived in Australia for the three earlier  tax years, if they are now leaving for over two years of overseas employment, if they the overseas employer provides accommodation for the entire period of employment, and if the individual intends to spend less than 45 days in Australia during each year of overseas employment.

Furthermore, government officials sent on foreign service overseas will continue to be tax residents of Australia.

Generally, Australian residents are taxed on their worldwide income and foreign residents are taxed only on income from Australian sources. Moreover, Australia has tax treaties or double tax agreements with over 40 countries, which avert double taxation and fiscal evasion, leading to cooperation between Australian and international tax authorities in enforcing their respective tax laws.

This apart, Australia has signed tax information exchange agreements with several other countries to bolster international cooperation on tax issues by way of exchange of information.

On the other hand, as Australia seeks to lure foreign investors, the Australian Taxation Office is gearing to set up a “concierge service” to provide relevant and prompt advice to foreign investors  on possible tax ramifications of proposed transactions or their relocation to Australia.

The concierge service will also review and advise on tax incentives for venture capital, “to examine whether current arrangements are creating incentives for additional investment and assisting genuine, early-stage Australian start-ups.”

As KPMG tax partner Hayley Lock expressed satisfaction about the new tax rules in the federal budget, she said, “Anything in the budget that provides more certainty and clarity for taxpayers will be good, particularly if it is in the nature of something that encourages migration into Australia of talent.”

While foreign investors are captivated by better economic prospects, Australia is also seeking to capture specialised talents and skills through the Global Talent Visa program. This is a specialised high-skilled immigration program Australia launched early this year to offer fast-tracked permanent residency annually to 5000 people, focused on high-end earners specialised in one of seven fields including fintech, space, and advanced manufacturing.

As Treasurer Josh Frydenberg said, “While other countries struggle to contain the virus and are moving to increase taxes, our focus is on driving an even stronger recovery and attracting the best and brightest to help set Australia up for the future.”

The dramatic changes seen in the Australian Federal Budget were the result of a review by Peter Verwer, former head of the Property Council, appointed as Australian Prime Minister Scott Morrison’s special envoy for global business and talent attraction during the pandemic in 2020. His work formed part of the Australian government’s strategic plans to entice export-oriented businesses in Hong Kong to relocate to Australia.

Thus, Australia is going forth single-mindedly, reaching out internationally but focusing only on domestic economic recovery following the pandemic. Even as the simplified tax rules draw people from across the seas, incentives to foreign investors will kindle their desire for greater earnings.

At the same time, Australia is strategically luring specialised skills from across the globe. Every country is fair game, and the only targeted result is Australia’s emergence as economic winner from a devastating pandemic.  As former US Vice President Hubert H. Humphrey once aptly said, “Foreign policy is really domestic policy with its hat on.”

This article was published by the Australian Institute for International Affairs.