ATO fact sheet on foreign resident employers’ tax and super obligations

December 17, 2020
The ATO has provided guidance on a foreign resident employer’s tax and super obligations for employees working remotely from Australia. The obligations depend on the employee’s tax residency status, source of employment income and, in the case of foreign residents, the application of a double tax agreement.

PAYG withholding
As part of the ATO’s initial COVID-19 response, it did not expect foreign resident employers to register for 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. The ATO recommends that employers start withholding as soon as it is reasonable to presume their employee will need to have amounts withheld from their employment income.

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.