Foreign resident employers’ tax and super obligations

December 17, 2020

The Australian Taxation Office (ATO) has issued guidance regarding the tax and superannuation responsibilities of foreign resident employers with employees engaged in remote work from Australia. The specific obligations hinge on factors such as the tax residency status of the employee, the source of employment income, and, in the case of foreign residents, the application of a double tax agreement.

PAYG Withholding: Commencing from July 1, 2020, employers are required to assess whether their employee’s income is subject to PAYG (Pay As You Go) withholding. This withholding is applicable to:

  1. Employment income of Australian residents, covering salary, wages, allowances, commissions, bonuses, holiday pay, and exit payments.
  2. Australian-sourced employment income earned by foreign resident employees, unless the short-term visit exception is applicable.

Employers are exempt from withholding PAYG amounts if the employee’s income is not taxable in Australia. The ATO advises employers to commence withholding when it becomes reasonable to assume that their employee will require deductions from their employment income.

Superannuation: Foreign resident employers typically need to contribute to the superannuation fund for both Australian resident and foreign resident employees conducting work in Australia. Failure to meet this requirement may result in the super guarantee charge. Employers must make superannuation payments in addition to employee wages if the employee earns $450 or more before tax in a calendar month and is 18 years of age or older. Departing Australia Superannuation Payment (DASP) can be claimed by eligible employees when leaving Australia, and a final DASP tax will be deducted from the payment.

Fringe Benefit Tax (FBT): Employers may also be subject to FBT obligations in Australia if they are obligated to withhold PAYG from employee payments. FBT is applicable to certain benefits provided by employers to employees, their families, or associates, in addition to or in lieu of salary or wages.