KPMG's top tax tips for families in mining and resources
Tax can be trying at the best of times - let alone when you're FIFO/DIDO or working overseas. To cut through the confusion, we've asked the experts at KPMG for specific advice on tax issues for families in mining and resources...
1. Can FIFO employees claim a tax deduction for flights to and from their place of work? How about airport car parking or taxi fares?
KPMG: Although we would all like to claim as many deductions in our tax returns as possible, there are some limitations to what can be claimed. While work related expenses are deductible, you have to be working to claim them. As such, the general rule is that travel from home to work (whether it’s through driving or flying) is not deductible. Similarly, car parking or taxi fares to an airport are also not deductible.
However, depending on your circumstances, there may be a possibility to deduct expenses such as flights, petrol and other incidental travel costs. To claim the deduction, ALL FOUR of the following factors must be met:
- You are required to live away from home for work purposes, in a remote area where the living conditions are quite poor (due to the remoteness and temporary nature of a site);
- Your family usually does not stay with you at the worksite and there is a requirement for you to leave the site when you are rostered off;
- You take your personal belongings with you while you are FIFO (as the accommodation on site is not fixed); AND
- The site is set up for a maximum period of one year.
We recommend speaking to a tax professional to confirm whether you can claim a deduction or not, as this area of tax is quite subjective. When an employee is travelling for work purposes (that is travelling to or from a business meeting and not to a fixed workplace) expenses incurred can be claimed.
2. Can Drive In Drive Out (DIDO) employees claim a tax deduction for the cost of petrol when driving to and from work?
KPMG: The discussion above also to applies for DIDO employees.
3. Do zone tax rebates (now called offsets) still apply when working remotely in Australia? If so, what are they and where do they apply?
KPMG: Yes, there is an offset available for employees who work and live in a remote area within Australia. To qualify for the zone tax offset, an employee must have lived/worked in an eligible remote area (not necessarily for a continuous period) for:
- 183 days or more during the current tax year; OR
- 183 days or more in total during the current and previous tax years (but less than 183 days in the current year and less than 183 days in the previous tax year) and not claimed a zone tax offset in the previous year's tax return.
Use this link to determine whether you work in an eligible zone to claim the zone tax offset. The amount of the offset will depend on a number of variables including the zone area, dependent/spouse information, and any remote area allowances received during the year.
4. Can mining, oil and gas employees claim a tax deduction for particular expenses such as watches/prescription sunglasses?
KPMG: Since no-one wants to pay more tax than they need to, there are a number of specific deductions for mining site employees. To take advantage of these, please refer to this link. Make sure that records/receipts of all work-related expenses are kept as evidence of deductions claimed in your tax return. In practice, common expenses you claim can include protective clothing, laundry expenses, tools and equipment, telephone expenses and membership subscriptions (unfortunately, this does not mean Foxtel or personal magazine subscriptions to keep you occupied while working remotely!)
5. Is salary sacrificing common among employees in mining and resources? What are popular types of benefits that can be salary sacrificed?
KPMG: Salary sacrificing is common for employees across many industries. Effective salary sacrificing (or salary packaging) is where the employee agrees to give up part of their earnings in return for an employer providing them with benefits (like cars, laptops or parking expenses). The benefit of entering into salary sacrifice arrangements is to reduce your taxable income for non-cash benefits which are taxed at a lower rate or not at all. This reduction in taxable income means you might pay less tax (or tax in lower rates) while enjoying non-cash benefits.
In practice, the typical benefits we see salary packaged include additional superannuation contributions, vehicles (although this may change), professional memberships, Qantas/airport clubs, car parking, relocation expenses and school fees (for employees working internationally).
We recommend discussing the opportunities for salary packaging with your employer or tax advisor prior to entering into any agreements.
6. What’s the tax benefit to resources families of boosting their personal super contributions?
KPMG: Superannuation is important for retirement and there are a number of steps that can be taken to maximise super contributions as well as take advantage of tax concessions. Superannuation contributions are generally taxed at a rate of 15 per cent within the super fund, so there may be tax advantages in increasing your contributions (through salary sacrificing) as this rate is generally lower than tax on salary earned, which is taxed at marginal tax rates. For example, if the employee's marginal rate of tax is 32.5 per cent (plus Medicare levy of 1.5 per cent) and the contribution rate is 15 per cent, there is a tax saving of 19 per cent on the contribution made. However, note that individuals earning income of more than $300,000 will have their contribution's tax rate increased from 15 per cent to 30 per cent.
Those nearing retirement age might be thinking: "Excellent, I’ll put most of my pay into superannuation!" Unfortunately, this cannot be done without tax implications. Where an employee is under the age of 60, a concessional superannuation contribution limit of $25,000 per annum applies. This limit increases to $35,000 if an employee is aged 60 and over. This is the maximum amount of contributions that can be made into a super fund and taxed at 15 per cent (or 30 per cent if your income is more than $300,000). Any contributions over this amount will be taxed at your highest tax rate.
It is important when contributing additional payments into superannuation to be mindful of these caps, as the treatment of excess contributions will effectively remove the tax saving opportunities for you.
Effective 1 July 2013, the compulsory employer contribution rate has increased from 9 per cent to 9.25 per cent (in accordance with the federal government’s initiative to increase employer superannuation contributions to 12 per cent by the year 2020).
7. Are there other ways for mining families to ensure they don’t pay more tax than necessary (e.g. investment properties, managed funds)?
KPMG: Families could consider borrowing to invest in rental properties, managed funds or the share market to take advantage of what is called negative gearing (meaning, the outgoings in managing investments is greater than the income from investments and this loss is offset by wages). Typically, interest on borrowings is tax deductible along with any costs associated in managing investments. However, the negative gearing benefit needs to be weighed up with the negative cash flow that may arise. Remember if it’s negatively geared it’s not necessarily making you money!
Where an investment is expected to be positively geared (i.e. bringing in money), it may also be worth considering buying the investment in the name of a non-working or low income earning spouse as their marginal tax rate will be much lower. We suggest you consider discussing your personal situation with a financial planner to ensure your investments (and superannuation) meet your long-term financial goals.
8. Are there any new tax rules that families should be aware of this year?
KPMG: In 2013 there were a number of changes which will remain/affect the current financial year:
- The tax-free threshold will be $18,200 (up from $6,000).
- Part-year tax residents are able to access a tax-free threshold of at least $13,464. The remaining $4,736 is pro-rated on a monthly basis.
- Where a spouse was born on or after 1 July 1952, the taxpayer can no longer claim a dependent spouse tax offset.
- From 2013, the private health insurance rebate is income tested, based on income for Medicare surcharge purposes.
- EFT (electronic funds transfer) details must be recorded for the ATO to issue tax refunds. This means that you can get your refunds faster!
- The amount of net medical expenses tax offset that can be claimed will now depend on a taxpayer’s level of income. Taxpayers are only able to claim an offset of 10 per cent of net medical expenses over $5,000 if adjusted taxable income is in excess of $84,000 for a single person, or $168,000 for a couple or family. Where income is below these levels, a tax offset of 20 per cent of the net medical expenses in excess of $2,120 can be claimed.
9. Many Australian FIFO employees are based offshore. When working overseas, what’s the best way to set yourself up tax-wise? (e.g. is a particular currency best? Is it best to be paid into an Australian bank account? What are the rules around bringing money back into Australia?)
KPMG: It is important to keep in mind that individuals who are FIFO from Australia to a foreign country may still remain resident of Australia for tax purposes, depending on their individual circumstances. This means that they may well remain taxable on their world-wide income and as such any income earned overseas, regardless of where it is paid, will be taxable foreign earnings in Australia (there is no escaping the Australian tax net!).
If you work overseas but are not FIFO, you have a greater chance of only being taxable in the foreign country on your employment income, especially if Australia has a double tax agreement with the country. Depending on your circumstances, you may be able to claim a credit for tax paid overseas. However, where the foreign tax is lower than the Australian tax, the credit may not be enough to cover all your tax in Australia.
In some instances, it may be beneficial from a tax perspective for employees to be non-residents of Australia and therefore only subject to tax on their Australian sourced income. However, to become a non-resident of Australia you must be seen to be cutting ties with Australia and intend to remain overseas for a substantial period of time. This is often difficult to achieve and to prove to the ATO (if required). We recommend seeking tax advice to assess your personal circumstances and develop effective tax strategies. KPMG has consultants throughout Australia who can provide specialist advice on FIFO arrangements, offshore employment and the associated Australian and international tax issues.
In relation to transferring funds, in general, you are able to move money in and out of Australia via bank transfers with no issues. It is important to note, however, that when translating foreign currency to Australian dollars (and vice versa) there may be an impact on the net amount received following the translation due to exchange rate fluctuations and conversion fees. If possible, employees may be able to request to be paid in a specific currency or, if financial circumstances permit, enter into a split pay arrangement with their employer so that a portion is paid in Australia, to reduce the fluctuation risk.
When thinking about the currency to be paid in, also consider the currency of your expenses. For example, if you still have a mortgage on an Australian property, you may want to have an amount paid in Australian dollars. It is important to remember that the physical location of where salary is paid does not impact the tax treatment of the payment.
10. Should employees in mining and resources get their tax done by an accountant with specific experience in the industry?
KPMG: There is value in using a tax advisor who not only has knowledge of the mining industry, but also has experience in dealing with individuals who are FIFO (or DIDO) or expatriates. Skilled advisors can calculate your income appropriately and ensure tax deductions or offsets are maximised. Specialist advisors can provide an insight to what other employees or employers are facing (as they usually have a number of clients with similar issues) and have experience in solving problems that may be common in the industry.
PLEASE NOTE: This information is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
KPMG's tax practice is not licensed to provide financial product advice under the Corporations Act and taxation is only one of the matters that must be considered when making a decision on a financial product. You should consider taking advice from an Australian Financial Services License holder before making any decision on a financial product.