Establishing the Australian tax residency of employees working overseas is critical for determining pay as you go (PAYG) withholding, fringe benefits tax (FBT) and other employment tax obligations.
The legislative tests to determine an individual’s Australian tax residency require each taxpayer’s unique facts and circumstances to be considered against various factors established under rulings and case law, such as the individual’s personal and economic ties to Australia and the foreign location and the length of time the individual intends to live overseas. In recent cases, the ATO has applied the weighting emphasis to a number of different factors, further increasing uncertainty in this area.
Where individuals working overseas remain tax resident of Australia under domestic legislation, it is also important to consider the application of the residency tie-breaker clause in a relevant double tax treaty.
Employers with expatriate employees working overseas should ensure they:
- have a robust process in place to identify the Australian tax residency of its employees and comply with the various employment tax obligations arising thereon
- can accurately accrue for the costs that may apply to tax residents, non-residents and double tax treaty residency positions.
If you have any queries in relation to the above, please contact me.