Businesses and individuals need to be wary of certain tax implications arising from remote working arrangements, particularly those overseas, according to a tax partner at HLB Mann Judd Sydney.
Peter Bembrick, tax partner at HLB Mann Judd Sydney, said following the enforced working-from-home measures of the past year, many companies are now open to the idea of their employees working remotely, however both businesses and individuals need to be aware of the tax implications of such arrangements.
“The COVID-19 restrictions forced companies to implement working from home approaches which – to many people’s surprise – were extremely effective. The upshot of this is that, for the first time, companies may be more willing to allow employees to work from wherever they want, even in other countries,” Mr Bembrick said.
“However, just because the thinking and perceptions of businesses have changed, it doesn’t mean the thinking of the ATO has changed. There are still a number of considerations to take into account, both for businesses and for individuals.”
Mr Bembrick said it will take careful planning to avoid a big tax bill, and advised both companies and individuals to get specific advice both in Australia and in the country they are moving to.
One consideration for businesses, he said, is whether the arrangements mean they will need to comply with payroll rules and reporting obligations in the country their employee has moved to.
“For example, if an employee moves to the UK but continues working for an Australian company, the UK authorities may decide the company should be treated as a UK employer, even if it doesn’t have any customers or an office there, with the resulting registration and reporting obligations in the UK,” Mr Bembrick said.
“Even in cases where an employee moves interstate rather than overseas, there may be tax implications – for instance, whether a new payroll system needs to be set up to manage the payroll requirements of the different state or territory, and potentially the requirement to register for, and pay, payroll tax in the other state or territory.
“While at some point in the future, the legislation may catch up with the new approaches, at the moment this is not the case.”
Another key issue to consider is tax residency, Mr Bembrick noted, adding that there needs to be a consideration whether the person moving overseas is going to remain an Australian tax resident.
“People need to think very carefully about whether their tax residency is likely to change as soon as they move overseas. Usually, it is more tax effective to become a tax resident of the country they are moving to, mainly because their salary will be taxed only where they are working while, if they remain as an Australian tax resident, they must report their salary to the ATO and may be up for extra tax as a result,” he said.
“However, in this new world, working remotely for an Australian company in another country is still an experiment, and some people may not want to take such a step in case the arrangements don’t work out.
“Even if they decide they don’t wish to be a tax resident of their new home, changing tax residency is not a choice, and will usually depend on a range of factors including how long they plan to live and work in the other country.
“The ATO can determine whether a person’s tax residency status has changed based on their particular circumstances and arrangements, noting the tax legislation in the other country also has a part to play. Where the individual moves to a country with which Australia has a Double Tax Agreement (DTA), there will be ‘tie-breaker’ residency rules that can be used when both countries claim the person as a resident.
“As a rule of thumb anything longer than three years, particularly with no fixed return date and a reasonable prospect of staying in the overseas country longer, makes it more likely that tax residency will change, but time is not the only factor to consider.”