The Australian budget ensures residents on lower incomes will be better off, but some changes will also see non-residents who have invested in Australia - including many New Zealanders - negatively affected.
The Australian budget ensures residents on lower incomes will be better off, but some changes will also see non-residents who have invested in Australia - including many New Zealanders - negatively affected.
There were a number of interesting changes announced last week which are important to reflect on in the lead up to New Zealand’s Budget on May 24.
There has been a significant increase in the tax-free threshold, from $6001 to $18,201.
However, this is offset by an increase in tax rates, meaning people with a taxable income of $80,000 or higher receive no benefit.
Other changes will also see non-residents with investments in Australia - including many New Zealanders with rental properties - negatively affected.
And as most Kiwis go to Australia as temporary residents, there are new allowances and benefits reductions will hit them hard.
Other changes will affect many New Zealand employers wanting to send employees to Australia on secondment opportunities.
The Australian government needs money and plans to get it from the wealthy and from foreigners.
Three key changes may affect us.
The first is a further reduction in living away from home allowances and benefits (LAFHAs).
As most Kiwis go to Australia as temporary residents, this change will hit them hard.
Housing and food costs will now either be taxable to the employee, or the employer if it is subject to fringe benefit tax (FBT).
Until now, a New Zealander working temporarily in Australia could ask their employer to allow some of their salary, say $52,000 of a $232,000 salary, as a housing expense (not unreasonable, at say, $1000 a week for a Sydney rental property).
That $52,000 would have been tax exempt which, under Australian rates, would give the employee an extra $23,400 a year.
The tightening of this budget has seen this benefit canned for temporary residents.
This change will affect many New Zealand employers wanting to send employees to Australia on secondment opportunities.
It will also severely restrict the Australian employer’s ability to attract the right people as LAFHAs have been a cost-effective way of offering New Zealand employees "tax packaging" arrangements to offset the higher cost of living in Australia.
Australian employers with significant numbers of expatriates or large secondment programmes will be the most heavily affected.
These businesses may find they need to consider downsizing their programmes or even look to move part of their operations offshore.
These changes are intended to apply from July 1 this year to any arrangements entered into post-Budget night.
Some good news is that existing arrangements can run for another two years, with the current treatment being grandfathered until July 1, 2014.
The Australian government has also increased personal income tax rates and thresholds that apply to non-residents’ Australian income "to better align with the rates and thresholds that apply to residents".
From July 1, the first two marginal tax rate thresholds will be merged into a single entity.
The marginal rate for this threshold will align with the second marginal tax rate for residents (32.5%) and will apply to all taxable income below $80,000.
From July 1, 2015, the same marginal rate will again rise from 32.5% to 33%.
On an income of $75,000 a year this equates to an additional tax hit of $2245 in 2012-13 compared to 2011-12.
In addition to this, the government has removed the 50% capital gains tax (CGT) discount for non-residents on any capital gains accrued after 7.30pm (AEST) on May 8, 2012.
Many Kiwis with rental properties in areas of Australia, such as on the Gold Coast, will now pay more tax on their rental income under the increased rate, and have any capital gains made subject to the full CGT.
The best course of action for such property owners would be to get their property valued as soon as possible as the CGT discount will remain available for capital gains that accrued prior to budget day.
So if a property was bought for $300,000, and the value had climbed over the last few years so it was now worth $400,000, that $100,000 gain would still receive the 50% discount when the owner sells.
Looking at these changes, one might ask if New Zealand should be introducing something similar.
The Australian government is clearly trying to placate local voters, and in our view most of these changes would not be suitable for adoption here.
Our government is in a difficult fiscal situation. It has no money and the huge cost of the Christchurch earthquakes to cover.
Perhaps enforcing a CGT but limiting it to non-resident investors would be one way to do this. It wouldn’t do much for attracting that greatly desired international investment, however.
Murray Brewer is a partner, tax, at Grant Thornton. Email Murray.Brewer@nz.gt.com
