LIVING AND WORKING IN AUSTRALIA - THE EXPATRIATE PERSPECTIVE

Living and Working in Australia - The Expatriate Perspective
By Caroline Maxwell

Immigration and Residence

The stringent criteria for entrance imposed on those hoping to expatriate or immigrate to Australia can sometimes give the impression that the Australian government is closed to the idea of new immigration. However, this impression is slightly misleading. Although the government is very clear about the types of people it is prepared to admit to the country (preferably young and skilled), there are a number of different visas available for varying periods of time, and experience in your chosen field also counts for a lot.

For most Australian visas, as well as fulfilling the criteria laid down for that particular type of permit, you will have to pass a 'points test'. These are preliminary assessments of your likelihood to succeed in and be of benefit to, Australian society. Age, professional experience, and English language skills are all assessed, and a number of points awarded according to the results. At the moment, the number of points required in order to be accepted for a visa is around 120, although this figure varies according to how keen the government is to encourage new immigration at any given time.

The different visa categories are:

1. Business Skills Visa

This class of visa allows successful business people to develop new business opportunities in Australia, and is available on a permanent basis, subject to a four year probationary period (see below). Within this category, there are several subsections, all with different requirements. These are:

• Business Owner. In order to apply for this visa, the individual must be able to prove that for at least 2 of the last 4 years, he or she had net assets in a business amounting to AU$500,000 (2006), and was actively involved in the management of the company for the same period. The business in question must have had annual turnover of at least AU$500,000 for 2 of the last 4 years, and there is also a Business Skills points test.
• Senior Executive. In order to qualify for this type of visa, the individual must demonstrate employment for 2 of the last 4 years in the top three levels of management by a major private sector business with a turnover of more than AU$50,000,000 (2006). There is also a need to pass a business skills points test, and the immigrant's business and personal assets must amount to AU$500,000, although this can be in combination with assets owned by their spouse.
• State- or Territory-Sponsored Business Owner. (As Business Owner Visa, except with required pre-immigration business assets of AU$300,000)
• State- or Territory-Sponsored Senior Executive. (As Senior Executive Visa, except that the turnover of the business need only have been AU$10,000,000 (approx. USD$5m), and business and personal assets need only to amount to AU$250,000.
• Investment Linked. An individual must first apply for a Investor (Provisional) visa. If they are successful, they will be granted a visa for a period of 4 years. They must demonstrate a successful business or investing career, 3 or more years of experience managing a business or portfolio, and for at least one of the five fiscal years preceding the application, direct involvement either in the management of a business in which there was more than a 10% ownership interest, or in the management of a portfolio in which there was the equivalent of AU$1,500,000 (for non-state sponsored visa applications) invested. For the 2 years prior to application, net worth must have been more than AU$2,250,000. There is also the need to pass a Business Skills points test. Applicants for Investor Visas must maintain their designated investment for a 4 year term. Failure to do so may result in visa cancellation. (N.B. The thresholds differ for state and territory sponsored investment visas- more comprehensive information can be found at: http://www.immi.gov.au/allforms/booklets/1132.pdf )
• Established Business in Australia. In order to qualify for this type of visa, there must have been at least a 10% ownership interest in an Australian business enterprise for at least 2 years, there must be minimum net personal and business assets of AU$250,000, and there must have been involvement in the active and continuous management of the business, and there must have been physical presence in the country for a total of at least one year in the two years before the application for permanent residence under this category is made. There is also a Business Skills points test. (Again, state or territory sponsorship affects the various thresholds here, and more detailed information can be obtained from the Immigration Department- see above.)

From 1 March 2003, immigration law in Australia was amended to introduce two stage visa processing for business skills migrants. Under the new arrangements, almost all business migrants are granted a provisional visa for four years.

After establishing a business with the requisite level of business activity, or maintaining the requisite level of investment in Australia, provisional visa holders are eligible to apply for permanent residence.

However, a direct permanent residence category is available for high calibre business migrants sponsored by state/territory governments. This will be known as the Business Talent visa.

The changes provide for Business Skills (Provisional) Class (UR) comprising 6 subclasses and the Business Skills (Residence) Class (DF) comprising 4 subclasses. The provisional class provides four year visas for Business Owners, Senior Executives and Investors, with corresponding subclasses offering considerable concessions for persons sponsored by State/Territory Governments.

At the second stage, the permanent residence visas provide for Business Owners and Investors, including State/Territory sponsored visas in each case. The permanent visas can be applied for by persons who have been in a business with certain prescribed attributes for two years in Australia, or retained their investment for four years and met a residence requirement, while the holder of a provisional Business Skills visa.

High calibre business persons may apply onshore or offshore for migration (ie direct permanent residence) in the Business Skills-Business Talent (Migrant) Class (AV), subclass 132 visa.

While it is expected that Senior Executive provisional visa holders get into business in Australia, they are also eligible to apply onshore for permanent residence under the Employer Nomination Scheme or Regional Sponsored Migration Scheme visa categories, should they receive offers of highly skilled employment while in Australia.

In view of the above changes, from 1 March 2003 it was no longer possible to apply offshore for Business (Long Stay) Independent Executive (457IE) visas. However, holders of these visas were able to continue to apply for the 457IE Further Extension Onshore, Established Business in Australia (EBA) and Regional Established Business in Australia (REBA) visas.

2. Temporary Business Visa

These types of visa traditionally allowed business visitors temporary entry to Australia, and could be arranged for both short stays (from 3 months) and long stays (up to 4 years), although obviously the formalities surrounding the application were greater for the latter category. They were available to:

• Executives, managers and specialists employed by a company operating in Australia
• Personnel from foreign companies which are seeking to establish a branch there or participate in joint ventures. Also, employees fulfilling a contract awarded to a foreign company.
• Independent executives seeking to join an existing business, or establish their own in Australia.
• Personnel sponsored by an Australian business

The Temporary Business (Long Stay) Independent Executive visa ceased on 1 March 2003 to new applicants.

However, the Subclass 457 Independent Executive Further Application Onshore (457IE FAO) visa was developed in recognition that an emerging number of Independent Executive visa holders in Australia were facing expiry of their visa, but were legitimately in business and required more time to be eligible to apply for permanent residence under the:

Established Business in Australia (EBA); or
Regional Established Business in Australia (REBA) categories; or the
State/Territory Sponsored Business Owner (Residence) category.

The 457IE FAO is a two year, multiple entry visa that allows 457 Independent Executive visa holders to remain in Australia and continue their business activities as an owner and principal.

3. Independent Visa

This group actually accounts for the largest contingent of skilled workers immigrating to Australia each year. Applicants are selected on the basis of education, skills, and professional experience, and the points test is applied to determine an individual's suitability.

4. Temporary Study Visa

This type of visa enables overseas students to study in Australia. The right to work while studying is not now automatically afforded, and all initial Student visas are granted with the condition 8101, No Work. Permission to work can only be applied for after studies in Australia have commenced.

Ease of application processing depends on whether the application is made from a 'gazetted country' (one whose citizens have a good history of compliance with student visa regulations) or a non-gazetted country.

In addition, student visa will only be granted to those seeking to undertake a registered course or part of a registered course on a full-time basis.

A registered course is an education or training course offered by an Australian education provider who is registered with the Australian Government to offer courses to overseas students.

5. Retirement Visa

On 1 July 2005, the Retirement visa (subclass 410) - Temporary) closed to new visa applicants. The visa class remains open to current subclass 410 Retirement visa holders (and their spouses), who will be able to continue to apply to rollover their subclass 410 Retirement visa.

Some former subclass 410 Retirement visa holders (and their spouses) may also be able to apply to rollover their previous Retirement visa. To be eligible, former subclass 410 Retirement visa holders must not have held another substantive visa since their Retirement visa ceased.

Retirement visa holders who successfully rollover their Retirement visa on or after 1 December 2005 will be granted four year stays in Australia (doubling the previous rollover period of two years).

6. General, or Skilled Australian Sponsored Visa

This type of visa is most appropriate for those who are immigrating for family, humanitarian, or other reasons. The person sponsoring the application must be either a parent, brother or sister, non-dependent child, niece or nephew, and they must be a permanent resident or Australian citizen. As for other visa types, applicants in this category must also pass a points test examining their skills, age, experience, and English language ability. There are a range of options including temporary and permanent visa categories, and special arrangements need to be made for New Zealanders applying under this category whilst already staying in Australia.

Definition of Tax Residence

A person is considered to be tax resident in Australia if:

• They are domiciled in Australia, and do not have a place of abode elsewhere.
  
• They are not domiciled in Australia, but have been there either continuously or intermittently for 183 days over the previous fiscal year.
  
• They are resident and go abroad, but the term of employment is less than 2 years, and the individual intends to return to Australia.
  
• They have a permanent home, habitual abode, or close personal and economic ties in Australia.

Resident Taxation

In February, 2006, Treasurer Peter Costello claimed that planned improvements to the taxation arrangements for temporary residents would give Australia one of the most competitive expatriate taxation regimes in the world.

The Taxation Laws Amendment (2006 Measure No. 1) Bill 2006, introduced into parliament on February 16 of that year, represented the third time that the National/Liberal government has attempted to make improvements to the expat tax regime, after two previous attempts were blocked by Labor Party opposition.

However, Costello explained that the new bill, introduced as part of the 2005/6 budget, goes further than the previously blocked legislation which would have applied a tax exemption to a temporary resident for a period of 4 years, only if the temporary resident had not been an Australian resident within the previous 10 years.

"The Government will now remove these time limits as they provide unnecessary disincentives and distortions for individuals wishing to remain working in Australia," Costello said in a statement.

The measure will now apply to holders of a temporary visa, with the exception of those who are directly or indirectly treated as residents for social security purposes.

Under the proposed legislation, holders of a temporary visa will not be taxed on foreign source income. They will continue to be taxed on all Australian source income and salary and wages generally, including income from employee shares or rights.

Further, capital gains taxation of temporary residents will be aligned with non-residents. The combination of these changes will also ensure that the capital gains tax rules for departing residents do not apply to temporary residents.

"The changes will significantly reduce administrative and compliance costs. It will also further reduce the cost to Australian businesses of employing expatriates," Costello observed, going on to note that the changes have been "welcomed" by business.

"The Government is committed to assisting businesses to access the skilled labour needed to compete internationally," the Treasurer added.

Australia has, however, traditionally had no specific system of taxation or allowances for visiting expatriates, and if they are resident, they must pay the standard progressive income tax on world-wide income and gains. Although taxes are levied at federal, state, and local levels, unless the expatriate individual has purchased property in Australia (in which case local land tax would be payable), the most relevant tax is probably federal income tax.

Australia has double tax treaties with virtually all of its major trading partners. At the time of writing, these include: Argentina, Austria, Belgium, Canada, China, the Czech Republic, Denmark, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kirabati, Korea, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Poland, Romania, Singapore, Spain, Sweden, Switzerland, Sri Lanka, Taipei, Thailand, the United Kingdom, the United States and Vietnam. The majority of these follow the OECD model treaty, and in all of Australia's full treaties, there is usually a 'tie-breaker' clause to deal with those who might otherwise be treated as residents of both Australia and the treaty country.

The government began to suggest that the country needed to improve the taxation position of visiting business executives in 2002, and indeed to reduce income taxes generally if it was to stay competitive internationally.

Currently, non-residents living and working in Australia for more than six months are likely to be taxed on any income derived from offshore, as well as income earned in Australia during their visit.

In 2003 the government made a further attempt to protect the offshore earnings of first-time temporary residents, but was again stymied after the bill was blocked by the Senate on two occasions (as previously mentioned).

Announcing the government’s decision, Treasurer Peter Costello said the measures had been abandoned in order to provide a degree of certainty for taxpayers.

The proposals were designed to help meet a demand for highly skilled labour by Australian firms, and would have exempted temporary overseas residents from capital gains tax on foreign income amongst other measrures.

“As Australian employers often meet these tax costs, the measure would also have the effect of reducing the costs of Australian businesses," said Costello in a statement in December, 2003.

In his 2004 budget, Costello announced A$14.7 billion worth of income tax cuts, mainly through the raising of income tax thresholds and greater tax benefits for families. “People on middle incomes should not face the top rate of income tax,” declared Mr Costello, explaining that tax thresholds are to be increased in two stages.

From 1 July 2004, the 42% threshold was increased from $52,000 to $58,000, and the 47% threshold from $62,500 to $70,000. These brackets were then shifted upwards again from 1 July 2005, when the 42% threshold was further increased to $63,000 and the 47% threshold raised to $80,000.

According to Costello, these reforms ensured that more than 80% of Australian taxpayers would face a top rate of tax no higher than 30%, whilst those previously paying the top rate of income tax received a tax cut of $42.21 per week.

“These changes improve the structure of Australia’s income tax system. They make it more internationally competitive. They improve incentive,” he observed.

Non-Resident Taxation

While resident individuals are liable for tax on their world-wide income, non-residents are only taxable on Australian sourced income and taxable Australian assets. However, the definition of 'Australian sourced' income is quite far reaching, and includes:

• Income earned by a branch or permanent establishment (usually a physical presence for more than 6 months in the fiscal year is taken as a permanent establishment) located in Australia and owned or part owned by the non-resident.
  
• Income earned from a contract accepted by an Australian agent authorised to accept contracts on behalf of non-residents.
  
• Income earned from contracts signed in Australia, or to be performed there.
  
• Income from contracts in which the implied or express law is Australian, or in which the currency of payment is Australian dollars.
  
• Income from contracts whereby one or both of the parties resides in Australia.
  
• Rental income from Australian property paid to a non-resident.

However, a non-resident employee will not pay tax in Australia if his employer is resident in another country, with which Australia has a double tax treaty, and the employee is in the country for less than 183 days in the fiscal year.

There is no separate capital gains tax in Australia, but capital gains are taxed as income, so any capital gains accrued in Australia by a non-resident will be taxed. The exception to this rule is the profitable sale of shares in a resident public company, where the shareholding is less than 10%, and the shares have been held for not less than 5 years. There is also no wealth tax levied in Australia, and inheritance and gift tax are non-existent, except where a capital gain may arise from a lifetime gift.

In March 2005, Australia’s government said it was planning to adopt new OECD guidelines, preventing the double taxation of stock options in employee share plans for workers employed overseas. The legislation, from July 2006, splits the taxable return from employee stock plans proportionally between the two countries, depending on how long the shares are held in each country.

In September, 2004, the OECD issued a series of recommendations designed to achieve a common interpretation of how tax treaties apply with respect to employees or directors who receive stock-options as part of their remuneration.

Explaining how Australia’s new rules will work, KPMG tax partner Martin Morrow observed: "These rules are seeking to say 'no, we will not treat that as a capital asset but as income from an employee share scheme', which means it will only be taxed in proportion to the person's service in Australia if it relates to that service in Australia (in the case where performance hurdles must be met)."

It is reported that around one million of Australia’s nine million employees are currently working overseas.

In November 2006, it emerged that the Australian government had delayed a Senate vote on a controversial capital gains bill, Finance Minister Nick Minchin ruled out any election year tax cuts that might "over-stimulate" the economy.

Speaking at the time, a spokesman for the Finance Minister confirmed that the government would defer consideration of the Tax Laws Amendment (2006 Measures No.4) Bill, which was scheduled to be debated.

However, the spokesman added that the government had not abandoned the bill, and would reintroduce the legislation at a later date.

According to Australian media reports, the proposals would give foreign investors exemption from capital gains on certain types of income, but they were not supported by all in the Liberal/National coalition government.

One notable dissenter, National Senator Barnaby Joyce, had threatened to vote against the bill because it would discriminate against domestic investors.

"Why should someone living overseas receive an advantage over a person living in Parramatta?" he was quoted as asking by the Australian Associated Press.

Meanwhile, Minchin has ruled out any expansive tax cuts in the next budget, warning that such a policy risks destabilising the economy.

"This is not the time for us to let go of the reins on fiscal policy," Senator Minchin told The Australian.

"We have to be careful not to over-stimulate the economy in any way that would put further pressure on inflation and therefore interest rates," he concluded

Bringing Investments into Australia

Because interests in many different types of offshore vehicles, and many types of foreign investment are liable to CGT and income tax in Australia, professional advice should be taken on such interests before bringing them into the country, as it may be possible to bring forward or postpone distributions, or to redistribute trust assets among family members. (Although be aware that after a certain point, the unearned assets of minors are taxed at the maximum marginal rate for individuals…)

There is also a danger that an offshore entity brought into Australia, if controlled by an individual (or his family group) who then becomes resident, will be considered to be Australian, and therefore subject to tax on its world-wide income. Therefore, the ownership structure of offshore (and all foreign) assets should be carefully checked out in advance.

Tax Breaks for Expatriates

In terms of tax breaks for expatriates who have become tax resident in Australia, the short answer is that there aren't any! For the moment, resident expatriates are taxed as Australian citizens, on their world-wide income, and there are fairly stringent anti-avoidance provisions in place to prevent the sheltering of assets in offshore trusts or companies.

There are no specific allowances or systems pertaining to non-resident expatriates, other than the fact that they will not usually pay income tax on foreign earnings or income, but they are not permitted to take advantage of some of the exemptions and rebates open to Australian residents. Although taxes are levied on both a federal and local level, the only time a non-resident foreign national is likely to become liable for local taxes is if he or she owns Australian real property, in which case land tax will be payable.

All personal and household goods are assessed for duty and sales tax when brought into Australia, but if the intended period of expatriation is less than 12 months, an exemption should be granted on household goods. This exemption can sometimes be extended, depending on the circumstances.

There are no exchange controls in Australia, although there are certain restrictions on the investments that can be made by non-residents, for example in urban developed residential real estate, and also in certain key industries.

So- Is Australia An Attractive Location For Expatriates?

Judging by the number of people who want to move there - yes! Although the immigration process can be fraught and expensive, the government is interested in encouraging those with skills which will benefit the Australian economy to move there. The stringent measures are designed to protect the very factors of Australian life that make many people want to move there - namely low population density, low pollution levels, and a high standard of living for the majority of Australian residents. However, in terms of taxation, the world's smallest continent is not the ideal location for expatriate executives, at least not those who are obliged to become resident for a long period of time.