The Australian Senate passed legislation in June that could make a major difference to the lives of some expats.
 
The abolition of section 23AG of the Income Tax Assessment Act went onto the statute book with bipartisan support in a move which could have a huge impact on Australian corporate entities and travellers alike.
   
In simple terms, if Australian taxpayers go overseas for between 91 days and two years they will remain liable to pay Australian tax. The only way to avoid paying the tax will be to produce a certificate from another jurisdiction, a FITO or Foreign Income Tax Offset, to indicate how much tax was paid elsewhere.
   
The issue tended to be overshadowed by a furore over employee share schemes. This was despite the fact that the crackdown on share schemes was expected to raise a relatively modest Australian $200 million over three years. The 23AG expat tax crackdown, meanwhile, was said by the Treasurer to be worth some Australian $675m in extra tax receipts over the same period.
  
The 23AG abolition has been passed into law despite the perception by many that the proposal posed many unanswered questions.
 
Michael Dirkis, senior tax counsel at the Taxation Institute of Australia, provided a backpacker example in addressing a Senate committee in Canberra during June. He indicated that gap year students from Australia could find themselves waiting for most of a year after returning home before they could sort out what tax they needed to pay.
 
Several experts including Dr Dirkis suggested there should be a ‘backpacker cut-off’ allowance to reduce the expensive compliance burden of chasing small amounts of tax.

The issue is also likely to cause issues for Australian expatriates in the Middle East who are on short-term contracts or decide to return home before being offshore for two complete tax years.

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