• Situations that may affect the amount to withhold

    Paying employees that work overseas

    If you make payments to Australian employees who are working for you overseas, you have the same tax obligations as if they were working in Australia.

    Some payments for foreign services that relate to certain development projects, charitable activities or government activities are exempt from tax.

    If you are satisfied that an employee's income is exempt from tax in Australia, you don't have to withhold amounts from payments you make to them.

    Withholding for foreign resident employees

    If your employee answered 'no' to the question 'Are you an Australian resident for taxation purposes?' on their Tax file number declaration, you must use foreign resident tax rates.

    There are two ways to withhold from the earnings of a foreign resident:

    • If the payee has not given you a valid TFN, you need to withhold at the top rate of tax for each $1 of earnings (ignoring any cents).
    • If the payee has given you a valid TFN, withhold the amount calculated from 'foreign resident tax rates' in the tax tables.

    Foreign resident employees generally cannot claim tax offsets. They may be entitled to claim a zone or overseas forces offset in limited circumstances. If a foreign resident employee has claimed any other tax offsets on the Tax file number declaration, do not make any adjustment to the amount withheld.

    Work it out

    Use the:

    End of work it out

    Withholding from other foreign resident payees

    Payers are required to withhold prescribed amounts from specific payments made to foreign resident payees.

    Foreign resident payees include all foreign individual and non-individual entities (for example, companies, partnerships, trusts, government organisations and superannuation funds).

    These special rules do not apply to payments made to foreign residents (non-residents):

    Entertainment or sports activities

    The foreign resident withholding arrangement applies to both individuals and groups in the entertainment and sporting industries. Entertainment or sports activities include the activities of a performing artist or sportsperson.

    Construction or related activities

    Construction and related activities include activities associated with the construction, installation and upgrading of buildings, plant and fixtures.

    Casino gaming junket activities

    The foreign resident withholding arrangement applies to payments for activities related to casino gaming junkets.

    These special rules do not apply to payments made to foreign residents:

    Personal services income

    Personal services income is income that is mainly a reward for personal efforts or skills.

    If you operate a company, partnership or trust that does not meet the tests of a personal services business, some income your workers generate may be personal services income.

    Additional tax obligations arise where an entity is required to attribute income to an individual. Where this is the case an entity may need to pay an amount to the ATO based on the amount of income that is to be attributed. The amount will be equal to the amount that the entity would have withheld if the income had been paid as salary or wages. The income is included in the individual's taxable income.

    • Last modified: 16 Aug 2013QC 27070