The Australian Taxation Office has issued guidance to clarify the residency position for those who find themselves temporarily in Australia and unable to depart due to restrictions introduced by the Australian Government.
The inability to depart Australia during the COVID-19 outbreak has generated uncertainty for many regarding their tax residency status in Australia – particularly as those who are tax residents of Australia are subject to Australian tax on their worldwide income.
The ATO guidance advises that if you were not an Australian resident for tax purposes upon arrival you will not become a resident simply by staying in Australia temporarily for some weeks or months because COVID-19 does not allow you to depart where you:
- usually live overseas permanently, and
- intend to return there as soon as you are able to depart
If this is the case the individual’s Australian tax obligations will generally remain unchanged; that is, the individual will not be assessed to tax in Australia on income with a foreign source, and will remain subject to Australian tax on income that has an Australian source.
The ATO guidance goes on to consider the position in respect of employment income while in Australia temporarily.
- Paid leave: If the income received from a foreign employer while in Australia is paid leave (such as annual leave) the ATO advises that it doesn’t consider this as being Australian income – so will not be assessable in Australia.
- Working remotely: If COVID-19 is the only reason the taxpayer is working in Australia, the taxpayer was not intending to stay in Australia, but has not been able to leave, the ATO accepts that working in Australia for less than three months will not result in the employment income being taxed in Australia. This applies whether the employer is in Australia or is overseas.
The guidance goes on to consider the tax position where the individual receives a wage or salary in Australia and Australia has a Tax Treaty with the taxpayer’s home country:
” Australia’s double tax agreements provide that in certain circumstances employment income derived by a person who is a resident of the other country (after applying the DTA tie-breaker rules) from performing employment duties in Australia for a short period will not be taxed in Australia.”
Generally, employment income is not taxed in Australia if all the following are satisfied:
- The individual is a resident of a country with which Australia has a Double Tax Agreement
- The individual is not present in Australia for more than 183 days in aggregate in either an income year or a 12-month period (depending on the applicable Tax Agreement)
- The salary or wages are paid by – or on behalf of – an employer that is not a resident of Australia
- The salary or wages are not deductible against the profits of an Australian permanent establishment of the employer.
For some Tax Agreements the 183 days do not necessarily all have to be in the same income year, and there may be breaks in the aggregate.
Employer obligations follow the above – ie where a salary is not taxable in Australia:
- Pay As You Go Withholding (PAYGW) is not required, and
- Reporting to the ATO under Single Touch Payroll does not apply
The ATO’s guidance can be read here.
If you are concerned about your tax residency status in Australia please complete the enquiry form on this page for a free no obligation initial discussion with us.
Please also complete the enquiry form if you are an employer outside Australia with an employee in Australia who is unable to depart and would like to discuss your payroll obligations in Australia.