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Those planning to work remotely from overseas must be cautious of their tax arrangements before leaving the country, says HLB Mann Judd.
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Remote workers and their employers must be aware of tax restrictions
22 June 2023
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10 minute read
Remote workers must be aware of their tax arrangements and restrictions when they choose to work remotely outside of Australia, or risk being taxed in both countries, says HLB Mann Judd.
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As COVID-19 opened up the ability to work remotely, predominantly from home, some employees looked to extend that and relocate abroad, however, many were unaware of the possible cross-border tax obligations it could attract, says HLB Mann Judd Sydney partner Peter Bembrick.
“Unfortunately, tax laws in Australia and other countries have not kept pace with social and technological changes arising from protracted periods of lockdown, and this is producing some unexpected outcomes,” said Mr Bembrick.
“Tax residency status in particular can be a grey area, as tax laws will generally apply differently in most countries depending on whether someone is a tax resident or a non-resident, which can differ from residency for migration purposes.”
“From an Australian tax perspective, when taking up a position overseas it has traditionally been cleaner to qualify as a non-resident (subject to applying the complex and subjective tax residency tests to their specific circumstances), in which case, they should be taxed on their foreign-sourced salary only in the foreign country.”
Mr Bembrick said while the tax authorities had been sympathetic to those stranded overseas during the peak of the pandemic with concessions offered, it was no longer the case for those who chose to work abroad.
“These situations were quite frequent during lockdown periods when workers were effectively stuck in either a foreign country or their home country, but the ATO have indicated people working overseas can no longer count on administrative concessions and they will instead be taxed according to where they are working,” he said.
He said if it was reasonably clear to the employee that they would be a non-resident once they relocated, that needed to be communicated to the employer before they left Australia. This would allow the employer to make appropriate adjustments to payroll, such as not reporting the wages to the ATO and not deducting and paying tax.
“In the other country, however, it is likely the Australian employer will have some form of obligation to set up an overseas payroll and comply with all the requirements of being an employer in that country, while potentially having no other activities or presence there, which could be quite onerous,” said Mr Bembrick.
“In some cases, contracting arrangements, perhaps involving a private company owned by the employee, are considered.”
“These may be effective in shifting all of the employer obligations to the individual providing the services, but the whole question of employee versus contractor is a difficult, subjective and ever-changing debate, and arrangements may also be subject to specific tax rules in the overseas country.”
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