The ATO has provided guidance on determining foreign resident employer tax and super obligations for employees working remotely from Australia. A foreign employer may have tax and super obligations for their employees based on:
- the residency status for tax purposes of the employee
- the source of any employment income earned by the employee, and
- the application of a Double Tax Agreement, in the case of foreign residents.
Pay As You Go (PAYG) Withholding Tax:
As part of the ATO’s initial COVID-19 response, it did not expect foreign resident employers to register for Pay-As-You-Go (PAYG) withholding if the only reason their employee was working in Australia was because of the effects of COVID-19 on travel and it was anticipated they would leave before 30 June 2020. This approach applied until 30 June 2020.
From 1 July 2020, employers must consider whether the employment income of their employee is subject to PAYG withholding.
PAYG withholding applies to:
- Australian residents’ employment income (including salary, wages, allowances, commissions, bonuses, holiday pay and payments when an employee leaves)
- Australian-sourced employment income earned by employees who are foreign residents (unless the short-term visit exception applies).
Employers are not required to withhold PAYG amounts if their employee’s employment income is not taxable in Australia.
A foreign resident employer will usually be required to pay super for Australian resident and foreign resident employees who perform work in Australia, otherwise the super guarantee charge will apply.
Employers must pay super in addition to their employee’s wages if employees receive $450 or more before tax in a calendar month and are 18 years of age or older.
Eligible employees can claim the super paid for them as a Departing Australia Superannuation Payment (DASP) when they leave Australia if they meet all the requirements. A final DASP tax will be withheld from their payment when it is made.
Fringe Benefit Tax (FBT):
Employers may also have FBT obligations in Australia if they are required to withhold PAYG from payments to their employees. FBT applies to certain benefits that employers provide to their employees (or their family or other associates) that are in addition to, or instead of, salary or wages.