The Western Australian government has recently announced that subclass 457 visa holders whose children attend public schools in Western Australia will pay an annual fee of $4,000 per child from January 2014.
This policy change is expected to place a severe financial burden on many affected employees (or their employers) and highlights the importance of salary packaging as a potentially effective cost reduction strategy.
Under the proposed changes announced as part of the Barnett government’s 2013/14 budget measures, 457 visa holders will be required to pay $4,000 in annual school fees for each child in attendance at a WA public primary or secondary school from 1 January 2014.
Although the WA government is yet to release detailed information concerning this revenue raising initiative and in particular, whether the increased school fees will apply to current 457 visa holders or future applicants, this additional cost is likely to cause many:
- 457 visa holders (and their accompanying family members) to seriously question whether or not to remain in Australia; and
- employers to review their current employment remuneration policies and practices for these workers.
In evaluating the potential impact of this change, an important potential cost saving strategy which should be strongly considered is the salary packaging of the school fees and related education costs for the children of 457 visa holders. This is because many 457 visa holders are likely to represent ‘overseas employees’ for fringe benefits tax (FBT) purposes and therefore, the opportunity exists to take advantage of an FBT concession for the education costs of the children of these employees.
Broadly, this concession provides a (full or partial) effective FBT exemption for the payment or reimbursement of a wide range of benefits (including tuition fees, books, tutoring and excursion costs), relating to the full-time education (whether in Australia or not) of the children (aged less than 25) of an overseas employee.
If these education-related benefits are provided to an eligible 457 visa holder under a valid salary packaging arrangement, it will not only mitigate the impact of this school fee increase for the employee involved through size-able income tax savings, but may also deliver associated benefits for the employer (for instance, less payroll tax, reduced need for future staff recruitment, etc).
Should you require additional tax advice or assistance in relation to salary packaging arrangements generally, or any tax matters concerning your organisation’s 457 visa workforce, please contact:
Tony Underhill
Principal, Tax
T +61 8 9480 2125
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