Recruitment of overseas staff into Australian advertising, media, PR and digital agencies looks set to become significantly tougher after the Government revealed that it plans to withdraw a major tax perk that makes it easier to attract overseas staff.
The Living Away From Home Allowance allows overseas workers on a 457 business visa to claim their accommodation and living costs against tax.
The impact of the changes – likely to kick in on July 1 next year – will be particularly dramatic on the media and marketing industry which recruits a large number of staff from the UK. The benefit is a major negotiation point for employers when trying to persuade potential recruits to come to the country.
One result of the change will be that the cost of living for staffers working in the country on a 457 visa and claiming the LAFHA will grow dramatically as they will effectively find their rent is costing them around 40% more in real terms.
There will also be a major cost for employers, who will now have to pay super contributions on affected staff members’ entire pay, rather than only on the part not claimed back against the LAFHA. In some individuals’ cases this will see companies having to pay twice as much super as they do currently.
The changes may see companies come under pressure to give staff pay rises to make good the shortfall, or risk losing them.
The changes – announced by Treasurer Wayne Swan yesterday – are due to come in on July 1 next year.
In the statement Swan blamed rorting of the sytem for the changes. The announcement said:
“The Government will introduce reforms to stop individuals from being able to exploit the tax exemption for living-away-from-home allowance and benefits.
“This tax exemption is being increasingly misused by a narrow group of people, particularly highly-paid executives and foreign workers, at the expense of Australian taxpayers.
“Rorting of this tax exemption… has seen the total amount of tax-free living-away-from-home allowance reported by employers to the Australian Taxation Office increase from $162 million in 2004-05 to $740 million in 2010-11.”
KPMG’s tax partner Andy Hutt predicted: “This is a move which will significantly increase the cost for Australian businesses of attracting highly skilled foreign workers.
“The majority of employers were not rorting the rules but providing the benefits in a manner consistent with the legislation and with the tax office’s public rulings.”
According to the announcement there will now be a consultation period.
- Declaration of interest: Some members of staff at Mumbrella’s parent company Focal Attractions are employed on 457 visas and will be affected by the changes.