Tax Protection and Tax Burden in Singapore

You are the HR manager for an organisation based in Melbourne that is about to send its first expatriate overseas to Singapore.Based on an analysis of relative costs, you have decided to send the expatriate, John,who will be accompanied by his wife, Margaret, with remuneration provided usingthe balance sheet method,with tax protection. The couple have no children.They are purchasing a house in Australia with current repayments at $24,000 per year.The couple are keen to make the move,which will befor four years. They see it as a development posting setting John up for future senior management positions.

John and Margaret have asked for an explanation of what this means in dollar terms.

John is currently employed as a senior manager in your organisation at a salary of AU$150,000 per year.Superannuation is additionalto this figure. Over the past two years John's average bonus has been $45,000 - you will use the same system for John in Singapore.

In Australia, John also receives a taxable car allowance of $25,000 per year.This provides him with the opportunity to purchase a car for personal use, but it must also be used when a car is required for business purposes. If he chooses to not purchase a car,then the company does not reimburse local travel expenses. Having heard about traffic issues in Singapore, John and Margaret will use taxis and public transport rather than buy a car.

Margaret works as a hospital administrator on a salary of $145,000 per year.

Problem for discussion

1. Work through the chart/spreadsheet (link below) to develop a balance sheet for John and Margaret and detailing the package the company will provide in Singapore. This should include salary,any allowances, information on whether a car/transport allowance will be provided,and the level of payments in Singapore dollars and Australian dollars as appropriate. Post the level of allowance calculated inthe spreadsheet before grossing up for tax. Please  note that if you hit 'enter' after each cell entry you will receive feedback on the entry and the correct figure to enter. So ultimately you will get to the correct allowance figure - you need to do this before answering the next two questions. The spreadsheet will take up to an hour to work through.

2.  Is tax protection the best approach? Why or why not?

3. After you have completed the calculation, please discuss the types of (critical) questions that John and Margaret are likely to ask and how you would answer them. 

Data

• Food utilities and other expenses in Singapore are 20% less than inAustralia.
  • Rental of a suitable apartment in Singapore will cost about S$7,000 per month.
• Singapore's tax rate maximum is 15%. For this exercise, you canassume an average tax rate in Singapore of 12% (approximately right for a salary of AU$220,000).
• For this activity,the Australian tax is $72,000.
• Let's assume that savings inAustralia are on average about 6% of after-tax income.
  • At the time vou were doing the calculation, the Australian dollar/Singapore dollar exchange ratewas A$1 = S$1.04.