• What are my obligations as an employer?

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    What you need to do

    If you have an employee who is an Australian resident working in a foreign country and their earnings do not meet any of the conditions to be exempt, you may need to:

    • withhold an amount from payments made to them
    • provide them with a PAYG payment summary – foreign employment (NAT 73297) which includes:
      • the amounts that relate to the period of foreign employment
      • any tax you withheld and paid to a foreign government.
       

    You will need to provide your employee with a PAYG payment summary – foreign employment if any of the following conditions apply:

    • You have withheld and paid foreign tax to a foreign government on behalf of your employee.
    • Your employee is in any foreign country for a consecutive period of at least 60 days. The period of 60 consecutive days commences at the time that the employee starts work in the foreign country. This period includes non-working days and will end if an employee returns to Australia.
    • The earnings have a foreign source.

    You do not need to issue a payment summary to a foreign resident who is employed by you in a foreign country and works in a foreign country.

    See also:

    When do earnings have a foreign source?

    Earnings have a foreign source when:

    • the work is performed offshore and foreign tax was paid
    • the business paying the person is located offshore
    • the work was not incidental to work performed in Australia.

    Generally, earnings do not have a foreign source where an employee:

    • attends a conference
    • travels for work
    • undertakes the work as an incidental part of their Australian activities.

    Example

    Kai is an accountant who goes to the USA to work with the parent company, but continues to be paid by his Australian employer. Kai's duties with the foreign country are unrelated to the work that he performs for his Australian employer. Kai works with the parent company from 22 February 2011 to 16 May 2011, and during this time returns to Australia for the period 20 April to 27 April 2011.

    Although Kai is in the USA for more than 60 days, he is not there for a consecutive period of more than 60 days. Kai's Australian employer would only be required to report the earnings and amounts withheld on a PAYG payment summary – foreign employment if they determine that the earnings have a foreign source. Kai's employer determined that the earnings had a foreign source.

    End of example

     

    Example

    Renee's Australian employer sends her to Hong Kong for two weeks to finalise an important acquisition. Whilst in Hong Kong, Renee is offered an opportunity to stay there for a further four weeks by an affiliate company. Although this work is unrelated to her duties in Australia, her Australian employer agrees to continue to pay her as it is seen to be a good opportunity to develop Renee and the relationship with the affiliate.

    For the initial two-week period, Renee's employer determines that her earnings do not have a foreign source, and payments made and tax withheld will be reported on the PAYG payment summary – individual non-business (NAT 0046) form.

    For the following four-week period, however, Renee's employer determines that her earnings do have a foreign source and these will need to be reported on a PAYG payment summary – foreign employment (NAT 73297).

    End of example

    See also:

    Taking account of foreign tax

    If your employee's foreign earnings are assessable in Australia and you pay tax to a foreign government on their behalf, you should reduce the PAYG withholding amount by the Australian dollar equivalent of the amount of tax paid to the foreign country.

    If the amount of tax paid to the foreign government is equal to or greater than the amount you would have otherwise withheld for Australian tax purposes, you do not need to withhold any further amount.

    Example

    Norman is an Australian resident who has been sent to work in Papua New Guinea for four months from July 2015. Norman will be paid in local currency, the Papua New Guinea kina, by his Australian employer. He receives K3,850 weekly. You have established that you are required to withhold $598.84 for Papua New Guinea income tax.

    Norman has claimed the tax-free threshold with respect to his Australian employment but is not eligible for any tax offsets. He does not have a Higher Education Loan Program or Student Financial Supplement Scheme debt. Norman is not entitled to leave loading.

    For the purposes of this example, the exchange rate that applies for converting Papua New Guinean kina to Australian dollars is 2.36.

    See table for calculation of the amount to be withheld for Australian PAYG withholding purposes

    Step

    Instruction

    Result

    1

    Convert the earnings in K to A$:

    K3,850/2.36

    $1,631.36

    2

    Calculate the Australian amount to be withheld from the amount calculated at 1, in accordance with the relevant pay as you go withholding tax table:

    Amount to be withheld from $1,631

    $405

    3

    Convert the amount withheld and paid to the foreign country to A$:

    K462/2.36

    $598.84

    4

    Reduce the amount calculated at 2 by the amount calculated at 3:

    Amount to be withheld = $405 – $598.84

    $0

    5

    Round to the nearest dollar

    $0

    The amount to be withheld for Australian PAYG withholding purposes from the payment of K3,850 is A$0.

    End of example

    Do I need to report leave accrued?

    You will be required to report an employee's leave on a PAYG payment summary – foreign employment if the leave accrued while the employee worked in a foreign country and the foreign employment has resulted in earnings that are either:

    • exempt from tax or
    • required to be reported on a PAYG payment summary – foreign employment.

    Example

    Suresh worked for her Australian employer in Fiji for a period of 12 weeks. Her employer determines that the earnings from this period of foreign employment are required to be reported on a PAYG payment summary – foreign employment as she was in Fiji for 84 consecutive days.

    During this time, Suresh accrued one week of annual leave. That week's leave, when taken, would need to be reported on a PAYG payment summary – foreign employment.

    End of example

    Will I have to pay fringe benefits tax?

    If you have an Australian resident employee who works overseas and their foreign employment income is not exempt, you may have a fringe benefits tax liability.

    A fringe benefits tax liability may arise where you provide a fringe benefit to an employee (or associate).

    You may also be required to record the value of fringe benefits provided to an employee if the grossed-up value of the fringe benefits provided exceeds $2,000 in a fringe benefits tax year. This amount should be recorded on a payment summary provided to your employee.

    See also:

      Last modified: 28 Oct 2016QC 22115