Fringe Benefits Tax Implications to Employers of Temporary Visa Holders

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Bringing staff into Australia to either work under a short-term visa such as subclass 482 (Temporary Skill Shortage) or 408 (Temporary Activity) visa involves some consideration for the organisation. It can be a costly exercise with visa fees, flights, short-term accommodation, relocation allowances etc.

One visa may then lead to another, particularly if the first visa was only a short-term contract. Alternatively, the organisation may consider an offer of Permanent Residency to the employee when they genuinely need to fill the position.

Did you know, however, that there are Fringe Benefit Tax implications to consider? We have a brief explanation below so you will have a much better understanding.

Employee residing overseas at the time of first application

The costs associated with the first visa application, where the new employee is overseas when the visa is lodged, holds an exemption for Fringe Benefits Tax (FBT). In that case, there will be a tax benefit regarding their transport and relocation costs under section 58A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

FBT exemptions for relocation, travel and living away costs are relatively extensive. They cover several expenses such as police clearances, obtaining a VISA and various expenses for assignment or contract workers.

In this scenario, the FBT exemption can apply, and no additional tax costs are payable.

Employed in Australia at time of the application

In contrast, if an organisation pays the costs of a visa application for an overseas employee to remain in Australia, the benefit provided will be exempt under section 58A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

The assumption of paying visa costs to retain an employee or engage a new employee is akin to costs such as recruitment fees, purchasing tools of the trade for the employee to use while undertaking their duties – desk, chair, computer, software etc. You would naturally assume that the cost of the visa is to the benefit of the organisation as they want to engage the employee for a more extended period in Australia to support their business. However, based on the ATO tax ruling, FBT applies to the VISA costs.

The Explanatory Memorandum to the Tax Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 (‘the EM’), which introduced section 143A of the FBTAA, discusses the intended meaning of ‘benefit in respect of relocation transport’:   

The circumstances in which a benefit will be treated as a ‘benefit in respect of relocation transport’ are specified in proposed section 143A. Broadly, such a benefit  is one that is provided to an employee who moves from one locality to another in the course of employment or in order to commence new employment where the benefit meets travel costs (i.e., transport costs and accommodation and meals en route) incurred by the employee (or a family member) for the purpose of taking up residence in the locality of the new workplace.”

If the organisation applies for another visa to enable the employee (overseas migrant) to remain in Australia, the cost towards the visa application is not an exempt FBT benefit.

Please note that the organisation’s sponsorship and nomination costs, which are mandatory payments for the company, are not part of the employee’s benefit. The employee cannot pay these costs. Otherwise, the company is in breach of its sponsorship obligations.  

In a nutshell, if your organisation is renewing (applying for a subsequent) temporary visa or a permanent residency visa, remember to consider the FBT tax. If you agree to cover ALL the application fees (outside of the mandatory company fees), this will incur an FBT liability.

Current FBT tax details are in the link here.

Data Matching and the Identity-matching Services Bill 2019

In line with the above, it is also important to note that The Department of Home Affairs (DHA) and the Australian Tax Office (ATO) share data.

The Data Matching Program came into effect in January 2019. It allows the Department of Home Affairs and the Australian Border Force to exchange extensive data with the ATO to “effectively detect and deal with compliance risks in the temporary skilled visa program”.

The particular focus of the Data Matching Program to Enhance Compliance in the Temporary Skilled Visa Program is to identify:

  • Temporary skilled visa holders who are not working in the occupation in which, or for the employer by whom, they were sponsored
  • Sponsors who are breaching their sponsorship obligation, including by incorrectly paying temporary skilled visa holders.

Significant data is matched, including relating to identity, visa, citizenship, travel documents, visa grants, migration agents’ details, employer/Sponsor data, sponsorship approval, nomination approvals, nominated base salary and total remuneration, postcode of work location, occupation code of worker, and such like.

On the back of the compliance for immigration, the ATO will also catch out organisations that have failed to report FBT items against temporary visa costs.

Australian tax laws are complex and challenging to understand, and it’s advisable to obtain detailed tax advice for your organisation.  

Source information

https://www.ato.gov.au/law/view/document?DocID=AID/AID201335/00001&PiT=99991231235958