As part of its Covid-19 response, the Australian Taxation Office (ATO) has recently provided guidance for foreign employers who have employees working remotely from Australia. The ATO’s guidance considers the Australian tax and super obligations.
Whether a foreign employer has a tax and super obligation will depend on each individual employees individual facts and circumstances. It is also critical to consider the Double Tax Treaty (DTA) where applicable.
PAYG withholding tax will apply to:
Importantly, the majority of Australia’s DTA’s provide that, in certain circumstances, employment income earned by a foreign resident while working in Australia for a short period (up to 183 days), is not taxed in Australia. This is known as the short-term visit exception. If the short-term visit exception does not apply, the applicable DTA may deem employment income earned by a non-resident while working in Australia to be Australian-sourced and therefore taxable in Australia.
Where the employee’s employment income is not taxable in Australia, there is no requirement for the employer to withhold PAYG tax.
Generally, employment income will not be taxable in Australia under the short-term visit exception if all of the following apply. The employee:
Where there is no DTA with the foreign country, the situation is more complex and will depend on whether the employment income has an Australian source.
COVID-19 has created a special set of circumstances that must be taken into account when considering the source of the employment income of a non-resident who usually works overseas but instead performs that same employment in Australia as a result of COVID-19. In this situation, the ATO accepts that, if the working arrangement is short term (three months or less), the employment income will not have an Australian source.
For working arrangements that last longer than three months, all facts and circumstances will need to be examined to determine if the employment is connected to Australia. This includes whether:
Your employment income may not have an Australian source where:
Please note that where an employee intends to stay in Australia for an extended period (and not return overseas as soon as they are able to), it will also be important to consider their Australian tax residency status. If the employee becomes an Australian tax resident, they are subject to tax on their worldwide income at that point and the foreign employer also has a PAYG obligation.
Where an employee is temporarily in Australia for some weeks or months because of Covid-19 they should not be considered an Australian tax resident provided they:
Where the employment income of the employee is taxable in Australia, the employer will need to register for PAYG withholding and the individual employee will need to obtain a Tax File Number.
A foreign resident employer is normally required to pay super for Australian resident and foreign resident employees who perform work in Australia, otherwise the super guarantee charge may apply. However, there is an exemption where a bilateral super agreement is in place with that country.
Please do not hesitate to get in touch with us if you have any questions and we would be happy to assist you.
Please visit our website at https://www.murphytax.com.au/ for further details.