Employers need to consider the timing of employee payments in any cost analysis when bringing foreign employees to Australia to work. Foreign employee performance bonuses may be subject to Australian payroll tax, even if the employee has spent limited time in Australia.
Payroll tax legislation includes provisions that impose liability upon employers on a monthly basis. Specific provisions confirm that when an amount is paid to an employee in a particular month, such amounts are deemed to be in relation to the services provided by that employee in that month.
Recent examples have arisen that highlight potential challenges for employers when an employee works in Australia, and continues to be paid overseas. A payroll tax liability will arise when that employee works “mainly” in Australia during that month. The provisions then deem that any amount paid to that employee for that month are payroll taxable wages for that month. Apportioning amounts for the period of time in Australia is not an option.
For example, when an expatriate employee is relocated to work in Australia and the annual performance bonus (that potentially relates to a period prior to the move to Australia) is paid after relocation, the entire bonus is subject to payroll tax.
The position becomes more challenging when the bonus is paid in a month when a particular employee is working in Australia on a short-term assignment or extended business trip that could, under these provisions, cause the entire bonus to be subject to payroll tax.
The tax authorities have issued a harmonised revenue ruling (PTA039) that specifically addresses these situations and that provides an example that confirms this treatment.
For more information, contact a KPMG tax professional in Australia:
Daniel Hodgson | +61 8 9278 2053 | email@example.com
Emma Finch | +61 3 8626 0986 | firstname.lastname@example.org
Andrew Hosken | +61 2 9455 9992 | email@example.com
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