Australia wealth tax – will a 6% rate be applied?

In the podcast below I analyse a number of stories, including:

  • Australia wealth tax – will it come in at at 6%?
  • What does China’s new expat policy on fringe benefits say about the future for overseas workers in that part of the world?

To give full credit to the original authors, I have copied the articles below with associated links. 

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Australian Greens to propose 6% wealth tax on billionaires to combat inequality – Theguardian

The party will call for 700% of the nation’s energy needs to be produced through renewables and promote the export of electricity

The mining magnates Gina Rinehart and Clive Palmer would be slugged by tax increases of $2.2bn and $586m respectively under a wealth tax on 122 billionaires proposed by the Greens at the next election to combat economic inequality.

On Sunday, the Greens leader, Adam Bandt, and Queensland senator Larissa Waters will launch their Fight for the Future campaign in Brisbane, in a bid to reset the national conversation as Australia emerges from the Covid-19 pandemic in what may be an election year.

Although Scott Morrison has suggested the government will go full term and wait until 2022 to call the next poll, the Greens want to stake out a progressive campaign agenda early.

The Greens will call for a jobs and income guarantee; funding dental and mental health through Medicare; making public schools, universities and Tafe free; and producing 700% of the nation’s energy needs through renewables, to export electricity.

The release of the policy signals the Greens will target Labor for abandoning policies from the 2019 election designed to redistribute wealth, including controversial franking credit changes.

The pitch to progressive voters suggests they should aim to elect a minority Labor government, with the Greens holding balance of power in both houses.

The Greens believe if they can reproduce their vote share in the 2019 election they are in line to win a Senate seat in New South Wales, Queensland and South Australia, where their current senators are not up for re-election this term.

The minor party is targeting nine Liberal and Labor-held lower house seats, although historically they have only broken through with the aid of Liberal preferences and Bandt remains their only MP.

The centrepiece of Sunday’s announcement is a 6% wealth tax on billionaires. The Greens cite the fact Australian billionaires grew their wealth by a third to $68bn during the pandemic to call for the measure.

The Parliamentary Budget Office estimated the new tax would raise $41bn over the decade, although it warns of a “high degree of uncertainty” as billionaires seek to avoid it.

To stop billionaires shifting assets offshore, the tax would still apply to 90% of their original wealth. The Greens also want a super-profits tax on all companies earning over $100m.

The Greens propose to lift the jobseeker rate above the poverty line to $80 a day, up from the $44 a day that the Morrison government proposed, and passed with Labor’s help, after it ended the coronavirus supplement.

In its campaign brochure, the Greens claim that “more than a million” jobs would be created in industries ranging from clean energy to aged care. By contrast, the Coalition plans to pull back economic supports even with two million Australians out of work, it said.

The Greens call for a $20bn investment in transforming the electricity grid and $25bn for public transport. No set timeframe is given on achieving 700% renewable energy, although the Greens claim it can be done by 2040.

Dental care and free public education have been centrepieces of the Greens’ policy offering since Bandt was elected in February 2020 after Richard Di Natale’s resignation.

In a statement, Bandt said “the next election will be closer than people think”.

“At the last election, Australia was only 828 votes away from a minority parliament,” he said.

“At the next election, people can kick the Liberals out and put the Greens in balance of power in both houses of parliament, where we will push the next government to go further and faster on tackling inequality and the climate crisis.”

Nick McKim, the Greens economic justice spokesperson, said “billionaires massively increased their wealth during a pandemic, while hundreds of thousands of people lost their job or had their hours slashed at work”.

“The very least they can do is start paying their fair share of tax.”

Some Tax-Exempt Benefits for Expats in China to Expire Next Year: Prepare for Possible Transition – China Briefing

Expatriates working in China enjoy various tax-exempt “benefits-in-kind” (BIK) – sometimes referred to as tax-exempt “benefits” or non-taxable “fringe benefits”. BIK are additional compensation, not included in the salary or wages, but paid on a reimbursement and non-cash basis.

However, due to the implementation of the Amended PRC Individual Income Tax (IIT) Law and relevant regulations from January 2019, certain non-taxable benefits-in-kind will be replaced by additional itemized deductions for some expatriates, while other non-taxable benefits-in-kind might cease to be exempt from IIT from next year.

The policy change has sparked concerns among foreign individuals as well as their employers, who may face an increase of tax burdens or labor costs. This article explains the implications of the changed policy and provides suggestions from tax, HR, and legal perspectives.

What are the tax-exempt benefits-in-kind?

Non-China domiciled individuals working in China can currently enjoy tax-exempt benefits-in-kind, including the below eight categories:

  • Housing expense
  • Education expense for children
  • Language training expense
  • Meal fee
  • Laundry fee
  • Relocation expense
  • Business travel expense
  • Home leave expense

Such benefits-in-kind could be exempt from PRC IIT provided that the expenses are reasonable in amount and there are corresponding supporting documents, such as invoices (fapiao), for each expense. In addition, there are some specific requirements for each category. For example, for home leave expenses, only the travel expenses for the expatriate themself from China to their/spouse’s home country for up to two trips per year could be exempt from IIT.

Three-year transition period for non-China domiciled tax residents

However, with the country’s new IIT Law taking effect from January 1, 2019, the government has considered rolling back the tax exemption on special benefits-in-kind for foreigners, partly in a move to equalize benefits between local and foreign tax resident workers.

To ensure a smooth policy transition, at the end of 2018, the Ministry of Finance and the State Tax Administration jointly announced the Notice on the Preferential Policy Convergence Problem.

The Notice introduced a three-year transition period. From January 1, 2019 to December 31, 2021, non-China domiciled tax residents (who do not have a domicile in China and live for 183 days or more in China in a given tax year) can choose to enjoy:

  • The tax-exempt benefits-in-kind; or
  • The six additional itemized deductions.

To be specific, the six additional itemized deductions include:

  • Children’s education expenses
  • Continuing education expenses
  • Housing mortgage interest
  • Housing rent
  • Healthcare costs for serious illness
  • Expenses for taking care of the elderly

The two policies cannot be simultaneously enjoyed by non-China domiciled tax residents during the transition period. And once decided, non-China domiciled tax residents cannot change their preference within a given tax year.

According to the Notice, after the three-year transition period, that is starting January 1, 2022, non-China domiciled tax residents will no longer enjoy preferential tax-exemption policies on benefits-in-kind, including housing, language training, and children’s education.

Instead, the three categories of benefits-in-kind will be replaced by the corresponding additional itemized deductions (that is, housing rent, continuing education expenses, and children’s education expenses).

However, as to the remaining five categories of benefits-in-kind (namely meal fee, laundry, relocation expense, business travel expense, and home leave expense), the policy has not clarified whether they may continue to be tax-exempt.

“Given the possibility that the government may abolish the tax exemptions on all of the eight benefits-in-kind, or the tax bureau may become more rigorous in approving the tax exemptions on the remaining items, employers should prepare for possible changes as early as possible to avoid concerns from expatriates,” said David Niu, Senior Manager in the Human Resources Administration and Payroll Services team at Dezan Shira & Associates’ Beijing office.

Compared with the six additional itemized deductions, the eight tax-exempt benefits-in-kind are believed to be more beneficial to expatriates who have a higher income and level of expense.

The tax-exempt benefits-in-kind are deducted based on the actual cost of each expenditure, although the amount is subject to the limit of a “reasonable” amount, which is based on the local living standard, consumption level, market price, etc., and, a proportion of around 30 to 35 percent of the expatriate’s monthly salary is usually acceptable by the tax authority.

However, most additional itemized deductions (except for healthcare costs) are deducted based on a standard basis.

For example, the itemized deduction standard for children’s education fee is RMB 1,000 a child per month – this can be a much smaller amount than the foreigner’s actual expenses for children’s education.

Adam Livermore, Partner at Dezan Shira & Associates, thinks foreigners with children in international schools can be relatively more affected. “The international school tuition can come to tens of thousands of dollars per child per year. Once the children’s education expense loses tax-exempt status, expatriates with children in such schools will face a significantly higher overall tax burden,” he explained.

“Expatriates that earn enough money to put themselves into the 35 or 40 percent incremental tax bracket with a couple of kids at international school would face several thousand dollars of additional taxation. So, it is an issue for them, in terms of a lifestyle choice,” he said.

Nevertheless, the policy transition is not necessarily a bad thing for all foreigners.

Previously, to enjoy the tax-exempt benefit-in-kind, expatriates have been required to provide corresponding invoices or receipts every month for each expense, which is not easy in all circumstances.

For instance, if a foreigner wants to claim rent expense, it is not enough to simply sign a lease contract with the landlord. To get an invoice for the rent, the expatriate needs to ask the landlord to make record-filing for the lease contract and provide an invoice every month. In practice, some people try to skirt this process by using alternative invoices, which is not advisable in terms of compliance.

In addition, foreigners whose income is not that high and cannot enjoy the tax-exempt benefits-in-kind, will now be able to access the six itemized deductions as long as they are resident taxpayers. Foreign employees can claim itemized deductions directly through their tax filing or via their employer, once they obtain their tax ID in the tax bureau. The application process will be much easier than submitting a pile of invoices or receipts.

Preparing for possible transition

As the policy change could result in some expatriate employees facing a reduction of up to 13 percent in their net take-home pay, to ensure staff stability, it is highly advisable that employers re-examine the labor contracts with affected employees and consider restructuring the employee’s salary package to lower their tax burden. Early communication and planning can improve transparency and avoid any disputes.

In some circumstances, enterprises may need to compensate foreign employees for their increased tax burden. “For larger multinationals, I don’t think this will be a big burden. But it could be significant for small and medium-sized enterprises (SMEs), especially those that are already struggling to cover the costs of multiple expatriates in China out of operating profit being made there,” according to Livermore who added, “these companies might need to adjust their model, for example, considering hiring more ‘in-pats’.”

Large multinational companies (MNCs) may face the increased budget cost of dispatching personnel in China. “For the sake of cost control, the headquarters of these companies will need to be more prudent and agile in planning the dispatching of employees to China,” Livermore advised.

David Niu also added: “In fact, some regions of China have been introducing preferential IIT policies to reduce the tax burden on foreign talents. For example, relocation to Greater Bay Area has become a strategy for some multinationals”.

Currently, the Guangdong-Hong Kong-Macao Greater Bay Area offers IIT subsidies to high-end and urgently needed foreign talents (including those from Hong Kong, Macao, and Taiwan), which can substantially lower their IIT rate to 15 percent until the end of 2023. Hainan Free Trade Portalso introduced a similar IIT preferential policy for high-end and urgently needed foreign and domestic talents until the end of 2024. “Other regions may also consider similar policies so as to stay competent in attracting talents,” Niu said.

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Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 251.2 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

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  • I was asked “if you could travel back 25 years with $10000 what would you do with it?”. I answer this question by asking if hindsight is easy in a world of uncertainty. 
  • How many years does it take to become a millionaire by investing? More specifically, I look at different scenarios to illustrate a wider point about investing returns.
  • Do professional athletes deserve their salaries? Or is it the wrong question to begin with considering life isn’t fair?
  • Why do so many people get intimidated by the topic of investing? Is it because investing seems technical or another reason such as the complicated way most financial experts speak?

To read more click below

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