On May 13, the Australian budget was delivered and contains measures which may raise tax burdens. Included are a 2% budget repair levy imposed on individuals’ taxable income above $180,000 and an increase in the Fringe Benefit Tax rate to 49%.
On 13 May 2014, the Commonwealth Treasurer delivered the Australian Federal Budget 2014-15.1 The Budget contains measures that will impact individuals – including those on international assignment – and their employers and may raise their tax burdens.
Modifications introduced by this Budget (some temporary in nature) and previous announcements, impact the rate of tax paid by individuals and the Fringe Benefits Tax rates over a number of years. These changes are likely to raise tax burdens for employees (including those on international assignment subject to Australian taxation) and their employers.
International assignment cost projections and budgeting for assignments to Australia and for assignees outside Australia still subject to Australian taxation should reflect the changes in the Budget.
Where appropriate, adjustments by payroll administrators to withholdings should also be made. With some of these changes due to take effect from 1 July 2014, employers only have a short period of time to make necessary payroll adjustments, including revising hypothetical tax calculations for outbound tax equalized assignees from Australia. Communication with impacted assignees will also be important at this stage.
Below we describe the main measures in the Budget affecting individuals and their employers. (All dollar figures expressed are Australian dollars.)
From 1 July 2014 until 30 June 2017, a 2-percent levy will be imposed on individuals’ taxable income above $180,000. This means that for an individual with earnings of $250,000 in the 2015 financial year, they will pay an additional levy of $1,400.
Taxable income thresholds and marginal tax rates for residents for the year commencing 1 July 2014, remain the same as for 2013-14 and are shown in the table below.
Taxable income ($)
0 – 18,200
18,201 – 37,000
19c for each dollar over $18,200
37,001 – 80,000
$3,572 plus 32.5c for each dollar over $37,000
80,001 – 180,000
$17,547 plus 37c for each dollar over $80,000
$54,547 plus 45c for every dollar over $180,000
Note: Excludes 2.0 percent Medicare levy (increases from 1.5 percent by 0.5 percent from 1 July 2014). And, as noted above, an additional Temporary Budget Repair Levy of 2.0 percent is payable on taxable income above $180,000 from 1 July 2014 until 30 June 2017. This effectively lifts the highest tax rate to 49 percent (including Medicare Levy and Temporary Budget Repair Levy).
With the introduction of the Temporary Budget Repair Levy to apply from 1 July 2014, there will also be an increase in the FBT rate to 49 percent. This increase is due to take effect from 1 April 2015.
Employers should also note that in addition to the increase in the FBT rate, there is a consequential adjustment to the FBT gross-up rates of 2.1463 where an employer is entitled to an input tax credit and 1.9608 where an employer is not entitled to a credit.
With the increase in FBT rate not due to take effect until 1 April 2015, employers who typically provide a grossed-up cash allowance to assignees on the top marginal tax bracket may consider providing the same net value to the employee by way of a fringe benefit in order to avail of the lower FBT rate of tax up until 1 April 2015.
Other measures announced include:
India-Australia Social Security Agreement
The announcement of a bilateral social security agreement with India should assist in reducing assignment-related costs with respect to India-Australia cross-border assignments/business.
Subject to the finalization of the agreement, there may be an opportunity to obtain a Certificate of Coverage from the Australian Taxation Office for outbound international assignees from Australia to India and eliminate the requirement to make social security contributions in India from 1 July 2015.
Some Quick Observations on the Budget
The package of Temporary Budget Repair Levy Bills passed the House of Representatives on 28 May 2014, and will now move to the Australian Senate for consideration.
The Bills containing the remaining tax measures will be introduced into Parliament over the coming months.
1 For more on the budget, see: http://www.budget.gov.au.
A$1 = US$0.93
A$1 = £0.554
A$1 = €0.682
A$1 = ¥94.58
For further information or assistance, please contact your local IES or People Services professional, or one of the following professionals with the KPMG International member firm in Australia.
+61 2 9335 8655
+61 3 9288 5279
+61 8 8236 3234
+ 61 8 9278 2053
The information contained in this newsletter was submitted by the KPMG International member firm in Australia.
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