International tax & business 2014

The current retirement system in Australia needs to be more attuned to a mobile international workforce: A case for reform

Source: Australian Tax Forum Journal Article

Published Date: 1 Sep 2014


Dealing with the fiscal impacts of Australia’s ageing population is potentially the most important issue for the next 30 years. The majority of countries in the developed world are facing an ageing population due to sustained low fertility and increased life expectancy. In order to reduce the fiscal burden following this decreased labour force participation and increased age-related spending, governments must appropriately design retirement savings systems to protect their budget, the taxpayers and the elderly. Individuals are increasingly taking up employment in foreign countries. Such international labour mobility provides a number of economic benefits for both the home and host country and may assist in stimulating the economy in light of an ageing population. Despite the internationalisation of labour, there is no consensus or uniformity regarding a model of retirement taxation.

Australia’s model of retirement taxation is unique in the world, sitting as an outlier in comparison with other Organisation of Economic Co-Operation and Development (OECD) nations. As a result of mobile retirees and workers, and with a variety of incongruous models of retirement taxation, the retirement taxation systems of the world present major problems in allocating the right to tax. Expatriate employees will often find themselves subject to double taxation on portions of their retirement funds or subject to harsh penalties for the transfer of their retirement benefits and the home or host state will often lose its right to tax. The aim of this paper is to identify a number of problems that a globally mobile work force presents to the current state of retirement fund taxation, especially from an Australian perspective. The paper will also provide a number of recommendations for reform in this area of law.

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International tax & business 2014

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