Bye bye LAFHA, no more gravy train

dave3004 wrote: »

Oh god I hope we keep it.

Lease on apt is up in September so will be moving out I reckon if we don't.

Stress of finding somewhere to live.

Can anyone work out how much it will affect me? I'm on about 60k a year (excl Super) I only get LAFHA on the 300 rent I pay weekly.

I think you'll be getting it on food as well. You should double-check. If so, it'll cost you $9000 a year from your pocket. Will that force you to leave?

No not getting it on food. Thought it would be around the 10k mark though. Nightmare

I think this is a good point below which was written by somebody on the previous of this thread in regard to the time given to people to fix their financial arrangements.......It shouldnt matter whether you are on a 457 or you are an Ozzie Resident......



the reforms will apply from 1 July 2014 for arrangements entered into prior to the budget.
So regardless of what any accountant or person answering the phone at the treasury says, they've announed that the reforms will apply from 1 July 2014 for arrangements entered into prior to the budget.
Frankly, common sense tells anyone that 457 visa holders under existing arrangements must be afforded the same time as Australians to rearrange their affairs, living arrangements and employment. If that wasn't the case, many 457 holders would be in a position where they couldn't afford to stay in Australia but couldn't afford to leave due to contractual employment penalties (repayment of relocation costs etc). The queue at HM's foreign and commonwealth office would be down the street.

All, I’m posting this message on a number of forums as it will provide 100% clarity on what is happening with regard to LAFHA for overseas workers.

I spoke with Rebecca Fanning, Wayne Swann’s research advisor on the LAFHA reforms. I can only recount the conversation I had with her. You may want to do your own due diligence on the matter. And, up front, I want to praise her for her honesty and taking the time to come back to me after office hours, regardless of the dirty work she’s being made to do.

Anyway, she conceded that Budget paper 2 does in fact say that all LAFHA reforms will be subject to a transitional period. However, she apologised for that, and said that it meant to say that only Australians will be allowed 2 years to re-arrange their financial affairs to an affordable position. Foreigners are left up a creek from 1 July 2012.

However, the reason there has been confusion on this is because Wayne Swann and his Treasury haven’t been 100% honest about the nature of the reforms in respect of overseas workers. What we’ve all missed (i.e. what they’ve tried to hide) is that they basically view the overseas worker LAFHA budgetary savings as a direct pass-through cost to business. Of course, I can understand why Swann wouldn’t say that, given how much he pretended to be helping Australian business in the budget. He’ll no doubt view it as a tax on nasty foreign companies - but I, like thousands of others who now can’t afford to live here/leave, work for an Australian company.

The reason I say this regarding the nature of the reforms is because the Treasury told me that they expected all employees’ losses to be met by employers through renegotiated employment contracts. I asked what happens if the employer refuses to renegotiate to a liveable wage for that individual/family, leaving the employee unable to afford to stay in Australia but unable to afford to go. She said that shouldn’t happen – it is up to the employer to meet all losses incurred due to the reforms.

I also pointed out that whilst the changes were intended to level the playing field between Australian employees and overseas employees, it costs an overseas employee thousands more per year to live and work here (health care, schooling etc), and therefore overseas workers (especially families) will be significantly worse off than Australians in the same job with the same company. She said that the Treasury expected companies to pay additional amounts to overseas workers to meet those additional costs.

Further, I asked when had notice been given that the proposed changes outlined in November were confirmed. She said that items set out in the mid-year outlook and consultation paper in November had the same effect as if set out in the budget. In other words, employers should have known exactly what was happening back in November, and should have been renegotiating overseas employees’ contracts back then to ensure that they didn’t lose anything. I took from her the Treasury view that, if an employer hasn’t renegotiated their contracts for overseas workers, they’ve been deliberately pulling the wool over the eyes of those employees, and they need to re-package salaries now.

All of this will be confirmed when the draft legislation and a press release is issued on Monday, although of course they’ll omit the bit about this being intended as a pass-through cost to nasty horrible foreign companies (although I understand that HM’s foreign office sees it as exactly that).

In summary, the Treasury view:
- a 2 year transitional period for Australian workers;
- nothing for overseas workers;
- businesses to provide repackaged contracts to all affected overseas workers to meet all additional costs.

My view would be that everyone affected should, as a first step, gather all information available to them before deciding how to proceed in their own particular circumstances:
- approach their employer and at least give them the benefit of this information, that the Treasury intends the company to pick up the employee’s losses;
- confirm the position regarding flights home (which the employer is supposed to pay for), so that the position on that is clear with them;
- confirm the position regarding employment contract termination costs (you may have to pay penalties within a certain period of having entered into the contract); and
- find out whether your employer has transfer opportunities to countries looking to have skilled/professional overseas labour (of course, you’ll want to stay clear of countries which have a history of these types of tax grabs from foreigners).

On a positive note, this is a great opportunity for businesses outside of Australia to recruit skilled and professional employees, and I have no doubt that anyone on a 457 will walk into a job abroad on a liveable wage for them and their family.

Ah I cant believe it, was so happy this morning when I saw the Irish echo article, then came on here. What a joke! i have no idea whats happening, will just wait and see what happens in July

And so the exodus begins...
http://winawer.org/blog/

The positive news for temporary residents is that the relevant transitional elements as they are set out in the exposure draft legislation (Tax Laws Amendments (2012 Measures No.3) Bill 2012: deducting expenses for living away from home) are unlawful, as they breach all of Australia's double-taxation treaties. These treaties are incorporated into Australian domestic law through the International Tax Agreements Act 1953.

This is because, in respect of existing LAFHA arrangements until July 2014, temporary residents and foreign residents will be subject to an additional restriction to which permanent residents will not be subject – namely the requirement to maintain a dwelling in Australia – in breach of the non-discrimination clauses in each treaty.

Taking the UK as an example, this contravenes Article 25.1 of the UK/Australia Double Taxation Convention, because it is subjecting UK nationals to requirements connected with income tax/FBT which is "other" and "more burdensome" than requirements to which Australian nationals are subject in the same circumstances, "in particular with respect to residence".

Further excellent news for UK nationals is that the Convention with the UK is the first Australian tax treaty to contain a non-discrimination article (Article 26) which gives taxpayers private rights of appeal. UK nationals have a direct right to appeal to the Australian Competent Authority, whose role includes assisting people who believe that the actions of Australia result or may result in taxation that is not in accordance with a particular tax treaty.

In addition to posting this information on other forums to help people elsewhere, UK nationals who wish to oppose the discriminatory transitional arrangements, may wish to include the following material in their consultation responses (to fbt@treasury.gov.au), in their communications to the Australian Competent Authority (australiancompetentauthority@ato.gov.au), and in their communications to the further relevant contacts I've listed (see below)…


"In respect of the Tax Laws Amendments (2012 Measures No.3) Bill 2012: deducting expenses for living away from home exposure draft (the "Exposure Draft"), proposed provisions in relation to Transitional – existing employment arrangements are in breach of the UK/Australia Double Taxation Convention (the "Convention") applicable to both income tax and fringe benefits tax, incorporated into Australian domestic law through the International Tax Agreements Act 1953.

Article 25.1 of the Convention, states:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

According to the ATO:

Article 25 (Non-discrimination) is included to protect nationals of one country from tax discrimination in the other country.

According to the HMRC explanatory memorandum:

…this Article provides that neither country shall impose discriminatory taxes (or requirements) on the nationals, permanent establishments and enterprises of the other.

In respect of existing LAFHA arrangements until July 2014, as set out in the Exposure Draft, "temporary residents" and "foreign residents" (which includes UK 457 visa holders) will be subject to an additional restriction to which Australian permanent residents will not be subject – namely the requirement to maintain a dwelling in Australia – in breach of the non-discrimination clause.

The result is that on 1 July 2012, UK nationals already working in Australia on 457 visas under LAFHA arrangements, will overnight see a decrease in their take home pay of up to 40% and possible immediate financial ruin, whereas the Australian Government has seen fit to put full transitional arrangements in place for Australians with existing LAFHA arrangements.

In his justifications, it is entirely disingenuous for the Treasurer (and those under his authority) to continually suggest that all 457 visa recipients of LAFHA are highly-paid executives. The Temporary Skilled Migration Income Threshold is $49,330, compared to the average Australian full-time salary of $68,791(Q3 2011).

It is unacceptable for the Treasurer to continually suggest that foreign workers (including UK nationals) who receive LAFHA are "rorting" (Australian slang, meaning "cheating" or "defrauding") the system. The ATO website currently advises UK expatriate employees on 457 visas that they are entirely entitled to claim LAFHA if eligible under existing arrangements:

Examples of employees on appointments of finite duration who will generally be living away from their usual places of residence are foreign nationals employed in Australia (expatriate employees)... In the case of expatriate employees having to reside in Australia for the term of their employment, each year we publish a tax determination outlining what we consider a reasonable food component.

The proposed discriminatory transitional arrangements, based on the Treasurer's disingenuous and offensive characterisation of UK nationals claiming LAFHA in line with ATO guidance, breach Australia's obligations under the Convention and conflict with its International Tax Agreements Act 1953. Existing Australian domestic law and treaty obligations require that the transitional LAFHA arrangements applicable to July 2014, must be applied to UK nationals working in Australia on 457 visas in the same way as they will apply to Australians.

In view of the Australian Government's failure (in breach of its own guidelines on public consultation) to demonstrate how previous consultation responses to the Assistant Treasurer's November 2011 consultation paper on LAFHA reform have been taken account of in the Exposure Draft (which responses explained inter alia that the Australian Government should not leave UK nationals who are tied into existing employment contracts and financial arrangements in Australia, to overnight financial ruin), it has been necessary to copy this consultation response to the following relevant parties:

• the Australian Competent Authority at australiancompetentauthority@ato.gov.au;
• Prime Minister, David Cameron, at camerond@parliament.uk;
• First Secretary of State, Secretary of State for Foreign and Commonwealth Affairs, William Hague, at haguew@parliament.uk;
• Deputy Prime Minister, Nick Clegg, at nick.clegg.mp@parliament.uk;
• Leader of the Opposition, Ed Miliband, at ed.miliband.mp@parliament.uk;
• Shadow Foreign Secretary, Douglas Alexander, at alexanderd@parliament.uk;
• the Foreign and Commonwealth Office, at http://www.fco.gov.uk/en/contact-us;
• Leader of the Australian Opposition, Tony Abbott, at Tony.Abbott.MP@aph.gov.au; and
• Australian Shadow Treasurer, Joe Hockey, at joe@joehockey.com."

I notice this is all in respect to the UK, what about Irish?

Hmmmm I like your arguments on the tax discrimination and indeed I have already sent in a submission based on this.... However I fear that all it will do is make Mr Swann decide to make the transition rule the same for evreryone by removing it frm Aussies rather than allow it for Brits... It gives him even more for his purse and only upsets a few voters ..... So yes it is a glimmer of hope but I for one am not holding my breath!

RaoulDuke66 wrote: »

Ianbee123 wrote: »

Hmmmm I like your arguments on the tax discrimination and indeed I have already sent in a submission based on this.... However I fear that all it will do is make Mr Swann decide to make the transition rule the same for evreryone by removing it frm Aussies rather than allow it for Brits... It gives him even more for his purse and only upsets a few voters ..... So yes it is a glimmer of hope but I for one am not holding my breath!

He CAN'T apply it to Australians in the same way, as it'll make many Australian families face financial ruin overnight. He thinks he can get away with it with UK nationals because Australians won't care and we won't challenge him legally. BOY, is he wrong!

Also, re a previous post, there are about 40 tax treaties - they're listed in the Schedule to the 1953 act if anyone wants to check their own country's.

Mate I hope you are right as I say I have used this argument and the tax treaty examples in my submission too... I guess if they ignore them then it's off to court we go.... Which is exactly how LAFHA rules were changed in the first place.... De ja vie or what!!

troels wrote: »

Do you know the proper procedure to appeal? I'm assuming its via the Competent Authority initially? I emailed them and they simply replied pointing me to the web site to provide feedback on the proposal. I replied again saying I don't want to provide feedback; I want to appeal under the terms of Article 26 of the UK/Australia Double Taxation Convention.

They haven't replied to this one yet.

Is this the correct route?

Well done - don't let them off the hook that easily! I understand that the Competant Authority provides an arbitration mechanism/forum (normally used in relation to corporate tax disputes), which can be utilised in addition to the normal avenues of litigation. Please let me know what the reply is.

ms_piggy2810 wrote: »

The 32.5% applies to non-residents. Ie non-residents for tax purposes. Most foreign workers are classed as residents for tax purposes. Get your facts right!

No-one on this thread is talking about the 32.5% tax rate for non-residents, as we are residents for tax purposes. We're talking specifically about the LAFHA transitional arrangements. Perhaps you could contribute something on that.

ms_piggy2810 wrote: »

mandrake04 wrote: »

http://www.heraldsun.com.au/money/federal-budget-2012-what-it-means-for-you/story-fn84gmep-1226350235644
http://www.news.com.au/money/federal-budget/federal-budget-2012-what-it-means-for-you/story-fn84fgcm-1226350235644
http://www.dailytelegraph.com.au/money/federal-budget-2012-what-it-means-for-you/story-fn84gkmz-1226350235644[/QUOTE]

People on here have been implying that 457 visa holders will be taxed 32.5%. As you say, being a non-resident for tax purposes has nothing to do with whether or not you are on a 457 visa. Therefore I don't understand why it has even been mentioned?

Yes, well we'll have to put them to bed with a cold towel and some nice blue pills. Although, perhaps they're being unwittingly prophetic. All foreign workers probably need to have an Australian exit plan in mind, as it seems only to be a matter of time before the Australian government becomes as excitable about nasty horrible outsiders as the German government of the 1930s.

Well, can everyone please stop re-typing and quoting THAT percentage, as it's polluting the topic of the thread. The thread is about Wayne Swann's offensive and disingenuous characterisation of foreign workers, the illegal transitional tax changes he's proposing which breach Article 25.1 of the 2003 UK/Australia Convention and the International Tax Agreements Act 1953, the fact that he's been found out trying to hide it, and the fact that he isn't going to get away with it. Now that we're all agreed (Ms Piggy), I would be interested to hear any material updates on the key issues. After writing a detailed e-mail to our HR department on the Article 25.1 breach, they came back to me to say that they were passing the information to the company accountants to consider the point in their consultation response. As I've said before, I already contacted direct those from the big accountancy firms who authored post-budget reports. I've had a number of responses saying that this aspect of the draft legislation will be considered in authoring consultation responses. I expect a number of tax lawyers will also pick this up. Once the professional services firms deal with this in their responses and commentaries, the game's up for Swann. And far from feeling self-congratulatory, I'll thank god that the families of 457 visa holders won't be subject to overnight financial ruin. Shame on Wayne Swann.

Nick Diamond wrote: »

I second this request for the template... I'll defo be onto my tax and HR departments and i'll forward it to those expats in my place of work

I have drafted something which I hope will be helpful to everyone, if you could please forward to others affected and perhaps also post on other relvant forums and social media sites. Feel free to adapt as suits you.

Taking the UK as an example, Article 25.1 of the UK/Australia Double Taxation Convention, applicable to both income tax and fringe benefits tax, states:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

The Government's proposals on transitional arrangements contravene Article 25.1 because they would be subjecting UK nationals to a requirement connected with income tax/FBT which is other and more burdensome than requirements to which Australian nationals are subject in the same circumstances, "in particular with respect to residence".

Given the financial and legal issues raised by the discrimination between Australians and non-Australians, I should be grateful if you would ensure that any consultation response made by the company (or by its legal or tax advisers) to the exposure draft legislation, outlines as a matter of priority, the breach of the above non-discrimination requirements to which the Australian government is subject.

Per the link below, I understand that such submissions require to be made by Tuesday 29 May 2012.
http://www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/Fringe-Benefits-Tax-FBT-Reform-living-away-from-home-benefits

Please let me know if I can provide further information on this.

Kind regards,

[#]

karl bracken wrote: »

Im all for LAFHA and the GF gets it but i dont get the moaning about loosing it.
We all know its basically a loop hole, if we were home working and say a Polish guy was getting 1000 more per month because he choose to live in Ireland and was doing the same job as us and paying the same rent, same food prices etc etc would that be fair? Playing devils advocate and all....

Sorry, I didn't have an intimate knowledge of Australian tax law before I signed my contract in October and moved to the other side of the World - I just went by the ATO's guidance which entitled me to LAFHA. Not sure too many others were Australian tax experts either.