On 11 December 2020, the Australian Taxation Office provided updated guidance to foreign resident employers with employees in Australia during the COVID-19 pandemic who are unable to return to their home jurisdictions. The revised guidance is intended to help foreign employers determine their Australian tax and superannuation obligations for employees working remotely from Australia but it is less concessional than the previous guidance released in March 2020.
Foreign employer’s tax and super obligations
A foreign employer's tax and super obligations for employees are generally based on the tax residency of an employee, the source of any employment income earned by the employee (if they are a foreign resident), and application of a Double Tax Agreement (DTA), if applicable.
Further to our technical update on 23 March 2020, which summarised the ATO’s previous guidance, the ATO has recently provided an update on issues relating to employees of foreign companies who have been in Australia unexpectedly as part of the COVID-19 response.
The ATO had initially advised foreign employers if they had employees in Australia, the ATO did not expect employers to register for PAYG withholding if it was anticipated the employee would leave Australia before 30 June 2020. This was a concessional treatment.
Due to the ongoing pandemic, from 1 July 2020, foreign employers are now being asked to consider the Australian tax implications of their employees remaining in Australia. This can include:
- Requiring foreign employers to register for PAYG withholding and withhold and remit PAYG withholding to the ATO;
- Liability of foreign employers to pay Australian Fringe Benefits Tax (FBT);
- Requirement for foreign employers to prepare and lodge FBT returns;
- Superannuation guarantee obligations.
The tests for these tax and superannuation implications can be complex and vary without a one-size-fits-all approach. For example, the requirement for superannuation guarantee obligations to arise for foreign employers are generally more onerous than the tax requirements.
The superannuation, PAYG withholding and FBT obligations for foreign employers with employees currently in Australia will depend on the facts and circumstances of each case.
This could include where:
- The employee may be considered an Australian resident for tax purposes;
- Australian sourced employment income is earned by a foreign resident (unless the short-term visit exception applies); or
- if an international tax treaty could apply, whether the short-term visit exception applies.
Dominic is an IT professional who resides overseas and works for ComputingWorldwide.com, an overseas company. Dominic can undertake his work remotely anywhere in the world.
Dominic was in Australia from 16 December 2019 to 4 January 2020 (20 days).
He subsequently came back to Australia as a safety precaution on 20 March 2020. Dominic advises ComputingWorldwide.com that he intends to leave Australia once it is safe to return overseas, but that he will stay in Australia at least until 1 September 2020 (due to a personal commitment).
By 1 September 2020, Dominic will have been in Australia for more than 183 days in total (the 20 days that he was in Australia during the New Year period are taken into account for the purposes of the short-term visit exception).
ComputingWorldwide.com checks the relevant DTA and establishes that it has to treat Dominic's salary or wages as taxable in Australia if he spends more than 183 days in Australia in any 12-month period.
As ComputingWorldwide.com is aware that Dominic is expected to be in Australia for more than 183 days in a 12-month period, it registers for PAYG withholding and asks Dominic to complete a TFN declaration.
ComputingWorldwide.com starts to withhold PAYG amounts from Dominic's salary and wages, report and pay the amounts to the ATO, from 1 July 2020.
Source: Revised ATO Guidance
We would recommend formal advice is sought by clients for appropriate interpretation of their relevant facts and circumstances. Due to the nature of penalties and superannuation guarantee charge, it is important that advisers consider this now rather than later. Particularly in the case of a significant global entity (SGE), where the penalties can be substantially increased if the employer is a SGE.