x Abu Dhabi, UAEWednesday 26 July 2017

New tax law surprises Australians

A surprise change to tax law at home will see some Australians working in the UAE having to pay their homeland's highest tax rate on their earnings.

A surprise change to tax law at home will see some Australians working in the UAE having to pay their homeland's highest tax rate on their earnings. This month's Australian federal budget included a projected deficit of A$58bn (Dh164bn) to help the country through the global credit crunch. Among the measures aimed at clawing back some of that money was a clause closing a tax loophole for some of those who work overseas.

News of the change quickly filtered through Australian expatriate communities around the world, particularly in the UAE, where tax-free income is a major drawing card compared with Australia's top tax rate of 45 per cent. The law change does not affect the majority of Australian expatriates, who are non-resident in their homeland for tax purposes, but will seriously affect contractors and consultants who spend part of the year working outside of their country.

Previously any income earned overseas on jobs that lasted 91 days or more was exempt from tax in Australia. The new rule, to come into effect on July 1, makes that income subject to Australian tax. Those working on charity or aid projects, or in what the law called "the national interest", are exempt. The tax levied by the Australian Tax Office will also take into account tax paid in the country where the money is earned, which has no relevance in the UAE, with its zero tax rates. There is also a 1.5 per cent levy for medical cover, which will go into Canberra's coffers.

The move has caused consternation among some Australian contractors, but observers say it could benefit economies like the UAE's and even help Dubai's recovery from its economic difficulties, as some people will simply relocate. The Dubai-based blogger Carolynn, of the website The Caro-van, highlighted the new law and voiced concern about its vague definition of exactly which expatriates are affected.

"Whether this applies to people earning income in non-tax jurisdictions like, umm, for example, the UAE, seems unclear, it all seems to turn on the definition of who is or isn't a 'tax resident'," she wrote. Steve Douglas, chairman of the Singapore-based SMATS group which specialises in tax issues for Australian expatriates, described the law change as "foolhardy" and potentially counterproductive.

Short expatriate contracts will be less attractive, he said. jhenzell@thenational.ae