Tax. Don't you just love it? Well, to ensure we at least understand it, we've sought the advice of a couple of experts. Wayne Manna and Tony Simmons are from PKF, one of Australia's top 10 accounting firms, and here they talk about the tax system as it relates to Aussie mining families. 

QUESTION: Many FIFO partners work offshore. Will recent changes to income tax laws affect the amount of tax they pay?  Are there ways to minimise the impact of these changes?

PKF:  Potentially yes. From 1 July 2009, the tax exemption that could apply to the overseas income of many Australians working offshore was removed. Those who do FIFO from Australia to a foreign country will now be subject to full Australian income tax. They will receive a tax credit in Australia for any tax they pay in the foreign country, but where the foreign tax is lower than the Australian tax on their foreign employment income, some additional Australian tax will be payable.  Medicare levy and, if applicable, the Medicare levy surcharge will apply to the total employment income. 

In some cases, workers are considering living out of Australia on a more permanent basis, but this is a major step and might not be an option for many families.

It is difficult to identify simple strategies that can be effective in every case. Most workers’ circumstances will be different and it is best for a worker to ask a tax adviser to look into their specific circumstances to see if there are strategies that can be adopted. Often, to implement specific strategies requires assistance from the employer and not all employers are willing to take on the additional administration. PKF has consultants throughout Australia who can provide specialist advice on offshore employment and the associated Australian and international tax issues.

QUESTION: When working overseas, what’s the best way to set yourself up tax-wise? Is it better to be paid in a particular currency?  How about being paid into an Australian bank account – is that best? When you’ve been earning an income overseas, are there things to watch for when bringing money back into Australia?

PKF: Often, Australians working offshore have little say in their employment arrangements.  An offshore employer set up in the Cayman Islands can tend to be quite inflexible with remuneration arrangements beyond remitting tax withheld to the relevant government (as is required in China for example). 

There are two issues to consider.  Firstly, whether the movement of large amounts of funds or currency needs to be reported to the Australian Government and secondly, the impact of exchange rates. 

In general, there is no prohibition on the movement of foreign currency, but workers may have to advise Customs of cash they carry into Australia where they are carrying $10,000 or more in Australian currency or the equivalent amount of foreign currency.  There are essentially no other currency movement restrictions where funds are transferred via a bank.

At the moment, a bigger problem is that the Australian currency is quite strong against the major international currencies, which means that an employee paid in foreign currency is receiving a lower equivalent amount of $AUS on conversion.  If possible, employees could ask to be paid in $AUS or if financial circumstances permit, to continue to hold foreign currency offshore until the $AUS weakens – when this will occur is difficult to predict, but it may still be some time before the major currencies strengthen against the $AUS. Please note that PKF are not economists, so we can’t make any predictions about the timing or extent of exchange rate movements.

QUESTION: Do zone tax rebates still apply when working remotely in Australia?

PKF: Yes. Zone and other rebates are now referred to as "tax offsets", which might have led some to believe that the system of remote area rebates had been removed. Zone-based offsets continue to be available to workers who live in or who fly into and out of remote areas in Australia. The more remote and inhospitable the work site, the higher the rebate available.

It is important to remember that a worker who does month-on/month-off work may not spend the required number of days in a zone area to qualify for the rebate each year.  In that case, the days worked in the remote area in successive years can be added together and, as long as the total days in the remote area is at least 182, the worker will be able to claim a rebate in each alternate year.  Workers living in a remote area on a permanent basis may be able to claim a rebate each year. 

QUESTION: At tax time, should miners remember to claim for any special or particular expenses?

PKF: The overall position is that a tax adviser needs to be willing to investigate the expenses that a mining worker is incurring so the adviser can determine the correct application of the tax law. For the client's part, they need to ensure they have records of all work-related expenditure so that claims can be evaluated and correctly compiled. An adviser frequently faces a delicate balancing act between maximising claims and the exposure of their client to the scrutiny of the Australian Taxation Office where work-related claims are higher than expected for a given occupation.

The important element is to identify expenditure that the worker is required to incur solely or primarily because of the work they do or the environment in which they work. This especially includes items that the employee are required to provide under employer policy, even where the items may have a "normal" character, such as a wristwatch.  Protective clothing and the laundering of protective clothing or uniforms is an obvious item, including sunglasses if the work is outside.  It is important that the employee is able to tell us if they have incurred costs providing an item for their work because their employer stipulates that they must have a particular item or an item of a particular specification. Where that is the case, the costs are usually tax deductible.

The costs of travel to and from a mine site are not tax deductible, but there may be strategies that can be implemented to gain an effective taxation benefit.

QUESTION: Should mining families try to pour maximum money into super? 

PKF: As the rules currently stand there are many tax advantages in maximising contributions into superannuation. The contributions tax that applies to the superannuation contribution is only 15% and this may compare favourably to the marginal rate of tax that is applied to salaries earned and not reduced by a superannuation contribution. For example, if the employee's marginal rate of tax is 40% (plus Medicare levy of 1.5%) and the contribution rate is 15% then there is a tax saving of 26.5% on the contribution made. Taking this one step further: because the tax on earnings on assets within super is also 15%, more funds can be invested and tax on the earnings is paid at a much lower rate.

QUESTION: Are there any issues to watch out for regarding new tax laws and personal super contributions?

PKF: Since 1 July 2009 an employee under the age of 50 has a concessional (deductible) superannuation contribution limit of $25,000 per anum and persons over the age of 50 can contribute $50,000. The employee needs to be careful not to contribute more than these limits as penalty tax rates of 31.5% apply to any excess contribution.

We note the Rudd Government has announced some changes to superannuation, including the goal of increasing employer superannuation contributions to 12% (up from 9%) by the year 2020. This will provide a welcome boost to retirement funding, but this measure will really only benefit those workers who are 35 years of age or younger. We do not expect older workers to see any appreciable gain from this measure.

One significant announcement is the proposal to allow workers over 50 years of age with less than $500,000 in superannuation to make top-up contributions into personal superannuation. These top-up contributions are not expected to be tax-deductible to employees, but employees may be able to benefit from salary-sacrificing these contributions. This should provide a significant incentive for older workers to contribute additional amounts to superannuation from 2012.

Please note that the Government’s response to the Henry Review reflect only policy intention at this stage. We can’t give any assurance that the above measures will be legislated in accordance with the government’s announcements.

QUESTION: What other methods can mining families use to ensure they don’t pay more tax than necessary? (eg: investment properties, managed funds)

PKF: One method a family could adopt is to consider borrowing funds to acquire an investment property or managed funds or direct investments (eg shares listed on the Australian Stock Exchange). In this way they could deduct the interest cost against the earnings and in some cases they can offset the loss or better known as negative gearing against their incomes.

It may also be worth considering buying investments in the name of a non-working spouse as their marginal rate of tax will be much lower than the working spouse thus saving tax on the earnings derived.

QUESTION: Are there any new laws that will change the way tax is assessed this year? Are mining industry employees likely to be specifically targeted by the tax department?

PKF:  We are not aware of any current proposals by the ATO to target employees in the mining sector.  However, the ATO routinely analyses activity across all employment categories and may target a specific sector if there is evidence of systematic non-compliance. It is possible that the ATO may look more closely at the returns of employees who have been working out of Australia and previously relied on the section 23AG exemption in respect of their foreign employment income. However, the ATO has not made any specific announcements on this issue.

QUESTION: What are the benefits of getting your tax professionally handled by an agent who specialises in mining?

PKF: The value of a using a tax adviser who has knowledge of the mining industry is the confidence that personal taxation affairs are being properly attended to. A skilled adviser may not necessarily be cheaper and probably should not be (you get what you pay for when it comes to getting tax returns prepared), but can offer both maximising tax refunds, or minimising tax liabilities and ensuring as much as is possible that tax returns are not subject to extra attention by the Australian Taxation Office.

QUESTION: Looking ahead to 2010/2011, how can miners and their families minimise income tax?  (eg: salary sacrifice, personal super contributions)

PKF: Refer to the answer on super above. Provided the contributions tax rate remains at 15%, this is still the best way to minimise tax. It has been announced that some aspects of the taxation of superannuation funds may be subject to government review, although we are not aware of (and could not predict) any specific changes that are likely to be made in this area.

QUESTION: Is there anything we have forgotten that you think mining families should know?

PKF:  We can’t think of anything at this stage, but will give regular thought to this as we become aware of issues specific to mining sector employees and announcements about the tax and superannuation laws. 

Wayne Manna and Tony Simmons are both Adelaide-based directors of PKF, one of the largest accounting firms in Australia.  PKF has offices in most Australian states and many offices around the world. Wayne specialises in income tax and in particular expatriate taxation. Tony Simmon's focus is superannuation, personal investment, financial planning and personal insurances. Both have more than 20 years' experience in income tax and superannuation.

PKF contacts across Australia are:

• SA/NT: Wayne Manna or Tony Simmons at PKF Adelaide on (08) 7421 1400. Email This e-mail address is being protected from spambots. You need JavaScript enabled to view it  or This e-mail address is being protected from spambots. You need JavaScript enabled to view it  
• WA: Steve Frapple at PKF Perth on (08) 9278 2222 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it
• Tas, Vic, NSW and Qld: Kumar Krishnasamy at PKF Melbourne on (03) 9603 1700 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it

For financial planning, contact Wayne if you're based in SA/NT or Tony if you're based elsewhere throughout Australia.