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:
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:
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:
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
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.