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Imported rules: Key legislative changes for Australia’s foreign workers

Posted by: The ADP Team on 10 August 2017 in Compliance, Finance

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Employing foreign workers can be an option for Australian employers who need to fill vacancies at their business. There are a number of working visas that are in place that have been created to support the use of overseas workers in various scenarios. Some visas have to be employer sponsored and others can be applied for directly by the foreign employee.

Of late however, politicians have been focusing on how to further boost jobs for Australians. Where there are skills shortages, there’s increased rigour around who can perform those roles and on what basis. This has created significant legislative changes around some foreign worker visas and rules in the last twelve months. Here’s a look at the three key changes that could impact you and your foreign employees.

Temporary Work (Skilled) visa – subclass 457

The most common employer sponsored visa that I’ve seen, in my experience working in tax and in the global mobility arms of large firms, is the 457 visa. This Temporary Work (skilled) visa helps a local business sponsor a foreign employee with a specific skill set to come and work in Australia for an agreed time period.

Foreign workers on a 457 visa are generally considered a temporary resident of Australia for tax and Medicare purposes, which means they have a more concessional tax treatment than a foreign resident.

It was announced, as part of the 2017-18 Federal Budget, that the 457 visa would be abolished and replaced with a new visa, the Temporary Skill Shortage (TSS) visa, as of March 2018.

Under the TSS regime there will be two sub-class visas being:

  • The short-term stream (up to two years); and
  • The medium –term stream (up to four years)

The TSS regime will also include a number of other revisions and new requirements, including but not limited to:

  • A revision to the occupation list – this is the list of occupations or skills for which a visa can be applied for;
  • A requirement that the visa applicant must have at least two years’ work experience in their skilled occupation;
  • Employers sponsoring visa applicants must pay the Australian market salary rate and meet the Temporary Skilled Migration Threshold (TSMT) which ensures that foreign workers cannot be engaged to undercut Australian workers;
  • Permanent residence eligibility will be extended from two to three years; and
  • A requirement to pay a contribution to the Skilling Australians Fund

For more information, please refer to the Department of Immigration and Border Protection. They have two FAQ’s available on the reform:

Working Holiday Makers

For me, there’s not much in life that’s quite as painful as a legislation change that applies part-way through a financial year. The law changes to working holiday makers and seasonal workers was brought in so abruptly that the ATO did not even have time to prepare much in the way of guidance. This included the application system for employers and most importantly, the TFN Declaration to support it.

The law was passed in November 2016 with effect from 1 January 2017 for any employer hiring working holiday makers on either of the following visas:

  • Subclass 417 (Working Holiday); and
  • Subclass 462 (Work and Holiday)

Under the new legislation, the first $37,000 of income earned by an employee under one of the aforementioned visas is taxed at 15%, with the balance at ordinary marginal (usually foreign resident) rates.

To apply these rates, the employer must register with the ATO to identify that they employ workers on one of the above visas. Even if the employee has completed their details incorrectly on the TFN Declaration, the ATO will know just by the visa type what the correct tax rate should be. The new TFN Declaration forms issued by the ATO include the question “are you a working holiday maker?“ to help facilitate this. Employers can also use the Visa Entitlement Verification Online service that employers can use to check the visa status of potential employees.

This change aims to provide incentive for these types of workers by taxing the first $37,000 they earn at a lower rate. It also ensures that employers are not applying the tax-free threshold to these types of employees.

For the 2016-17 financial year, employers of working holiday makers would potentially have needed to issue two payment summaries (pre and post law change) but for this financial year, only the one payment summary is required.

Departing Australian Superannuation Payment (DASP) for foreign workers

Foreign workers who had superannuation guarantee payments made on their behalf by their employers may be eligible to access this fund when they permanently depart Australia. The legislation requires foreign worker to have left Australia; their visas must have ceased and they must not be considered a resident of Australia or New Zealand.

Depending on the visa the employee was employed under, the tax treatment of the DASP varies. The tax rates were recently amended with effect from December 2016. The ATO table shows below:

Super components DASP ordinary tax-rate for non-WHM DASP WHM tax rate for WHM with super contributions attributable while on a WHM visa
Tax free component 0% 0%
Taxed element 35% 65%
Untaxed element 45% 65%

Legislative changes are always complex but especially so when dealing with foreign workers. Many payroll and HR professionals may not have been previously exposed to the specific employer obligations and it can be easy to make a mistake.

Read ADP’s compliance eBook to understand how your payroll solution can help you meet tax and Fair Work legislative obligations. Or simply contact us to discuss your specific needs.

Written by: Angela Lehmann, Legislation Manager (Payroll & Tax), Australia and New Zealand

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