Frequently we provide tax advice for an individual who is working overseas for Australian employer and Australian tax implications. The implications are two sided - for the Employer and for the Employee. Working overseas for an Australian employer and the Australian tax implications
Employee - Working overseas for Australian employer and Australian tax implications
The tax implications for the Employee is substantially affected by their status for Australian tax purposes. If the Employee is considered a Resident for Australian tax purposes, then the income will be taxed accordingly under Australian tax rules.
Practical factors that are relevant and must be considered include:
- PAYG withholding obligations
- Medicare Levy and Medicare Levy Surcharge
- HECS / HELP repayment
- Other Australian taxes and charges
A key step to unlocking the Australian tax implications is to determine the residency status of the Employee. Calculate your Australian tax residency status here by selecting the Expat option from the drop down menu (Note: this is a guide only and does not provide you with tax advice. We can confirm if you are a resident for Australian tax purposes or a non-resident for Australian tax purposes by providing written tax advice to you.
Separately, the Employee's foreign tax obligations also this need to be assessed. If Australian PAYG tax has been withheld and paid to the ATO then this tax may count as a foreign tax credit in the foreign tax jurisdiction. There are tax planning opportunities here that can maximise a claim for foreign tax credits.
The key message is obtain professional tax advice to ensure the correct tax treatment is applied and both the Employee and Employee are not disadvantaged.
Employer - Australian tax implications
For the Employer, the Australian tax implications depend solely on the Employee's Residency status for Australian tax purposes. Often Employers will take a conservative position and treat the Employee as a Resident for Australian tax purposes and tax the Employee as if they had always worked in Australia.
This approach is not always the correct treatment for a number of reasons - especially where the Employee is a Non-resident for Australian tax purposes - including:
- Where the foreign country imposes tax on the Employee at a tax rate less than the Australian tax rate then there may be foreign tax credits lost - for the Employee means a loss of take home pay or after tax cash. So the Employee may lose out unnecessarily!
- Creates additional tax reporting requirements
- Payroll tax may be paid unnecessarily
- Superannuation may be paid unnecessarily
Employee versus Employer - striking a balance is key
The key to ensuring both the Employer and the Employee embrace the engagement and maintain a working relationship is dialogue with informed and correct tax advice. A balance needs to be struck between tax minimisation, employee remuneration and managing the complexity surrounding correctly reporting and meeting tax obligations imposed by the respective tax authorities of the relevant countries.
The key is to seek reliable tax advice regarding any employees working overseas for an Australian employer and Australian tax implications.
We can help
Our team of experts at TXM can help you navigate the way through the complexity and provide Employers and Employees with the correct tax advice for employees working overseas for Australian employer and Australian tax implications. In many cases we have managed to save significant tax for both the Employer and Employee. Contact TXM to schedule an obligation free consultation.
Important: The above commentary is for information purposes only and does not constitute tax advice upon which you can rely. If you are seeking formal tax advice, please make contact with us. TXM Chartered Accountants provides nil warranty for any loss or damage caused as a result of relying on the above information.