Companies are increasingly working across borders as business travel returns and the demand for remote work arrangements increases. Are you aware how these arrangements can impact upon your tax obligations?
Did you know that:
- interstate travel for remote workers ordinarily working from home can attract fringe benefit tax obligations
- international travel even for just a couple of weeks can trigger corporate tax liabilities in foreign jurisdictions
- there are proposed amendments to Australian individual tax residency rules that could mean periods of as little as 45 days in Australia in an income year could trigger Australian tax residency.
Taking time to understand these risks is as important for short term travel as it is for long-term assignments for both the employer and employee.
Let's consider an example of a sales manager travelling to the United Kingdom (UK). This has potential to create a permanent establishment issue for the employer in the UK. To avoid that result, there should be restrictions on the sales manager negotiating or concluding contracts on behalf of the Australian employer whilst in the UK. For the sales manager, it has potential to create a residency issue and therefore income tax obligations in the UK. A period as short as 17 days can have that result if the sales manager had been a UK resident in any of the prior three years. The Double Tax Agreement between Australia and the UK could assist – but will not always provide a clear answer for those that have moved around a lot or have not put down solid roots.
For longer term travel, there are considerations of who bears the tax risk with some employers choosing to tax equalise employees undertaking global assignments whilst others asking the employee to take the risk and factor it into total remuneration. Either way, the decision made should be an informed decision. Some considerations that can fall through the gaps include:
- who the employing entity should be (noting that tax obligations can fall on the 'economic employer' rather than 'legal employer' in some instances)
- making arrangements for whether Australian superannuation contributions are continued whilst the employee is overseas or paused
- determining whether PAYG withholding obligations arise in Australia for salary paid
- considering total remuneration packages – employee share schemes being one type of arrangement taxed quite differently in different jurisdictions around the world
- understanding wages that need to be included for payroll tax purposes.
Visa category can have an impact too as Australia differentiates between taxes for those travelling on designated temporary visas and those on permanent visas.
To reduce these risks in your company you should be:
- establishing travel policies
- requiring a compliance checklist in connection with business travel
- limiting some activities of the business traveller's whilst abroad
- keeping records of business travel undertaken and purposes for the same
- consulting with tax, employment and immigration experts.
Employees should also be advised to seek tax advice as it can have an impact on the taxation of their private assets. For example, becoming a foreign resident can limit the use of the main residence capital gains tax exemption and cause trusts to become foreign trusts with significant tax implications. The employer for Fair Work Act purposes and for tax purposes could be different given that Australian tax law relies primarily on economic employer and Fair Work Act on where the contract was formed and the duties are performed
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.