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  • Inbound assignees

    Some multinational employers often exchange/transfer employees with affiliated entities in different tax jurisdictions for business and commercial purposes.

    These employees are usually paid by an offshore entity and the Australian host entity will often establish a ‘shadow payroll’ for tax and social security obligations and tax equalisation purposes.

    Shadow payroll arrangements can differ across entities and vary in complexity. A common practice is to conduct initial calculations outside of payroll software, and then enter the amounts into the software for reporting and reconciliation purposes.

    Why there is a need for a concession

    We recognise that there are many factors that impact on the operation of a shadow payroll arrangement which may make reporting through Single Touch Payroll (STP) on or before the day an amount is paid can be difficult.

    These factors can include:

    • delays in receiving information from an overseas payroll
    • currency conversion of payment amounts
    • a requirement for additional calculations to ascertain liabilities and implement tax equalisation.

    Eligibility

    You may be eligible for shadow payroll concessional reporting if you are required to report information through STP that relates to an inbound assignee. An inbound assignee is an individual that:

    • is employed by an offshore entity, for example, an entity that is non-resident for Australian taxation purposes
    • is seconded to Australia
    • has all or part of their base salary and other remuneration paid by an offshore entity
    • is maintained in Australia using a shadow payroll arrangement, for example, a notional payroll for the purposes of tax and social security obligations and internal tax equalisation and protection policies.

    Employees the concession applies to

    Although you may be eligible for this concession for your inbound assignees, your Australian based employees must be reported on or before pay day.

    You will not be able to take advantage of this reporting concession in relation to payments that are made through an Australian-based payroll. A limited exception may apply if such payments are forwarded from the foreign payroll and on-forwarded by the Australian entity.

    Employers who are not required to report through STP

    A foreign entity employer will not be required to report using STP for employees with a temporary presence in Australia where the employer has been granted a withholding variation to nil.

    In these cases the entity’s reporting requirements will be specified under the withholding variation notice.

    Due dates

    From 1 July 2019, the due date for submission of reporting of inbound assignees through STP is the last day of the next calendar month after the relevant payment is made.

    Understanding the effect of the reporting concession

    The reporting concession does not impact the tax treatment of the associated payment.

    For example, if you make a payment but do not process this through a shadow payroll until several weeks later, the reporting concession does not deem the payment to have been made on the later date or change the PAYG withholding obligation date.

    The concession provides both:

    • additional time each payday to gather the information required to submit an STP report about the payment
    • flexibility in calculating the amounts that a reasonable estimate reported through STP is sufficient provided that the estimate is corrected with accurate reporting at or before end of financial year finalisation.

    One month in arrears

    If you are reporting through STP in relation to your inbound assignees, you will be permitted to submit each report at any time before the end of the calendar month following the date payment is made to the employee.

    This reporting can either:

    • a separate pay event which outlines only inbound assignees
    • inclusion of inbound assignees, into the regular STP reporting of the entity for its local employees.

    The STP pay event will state the date the payment was actually made to the employee.

    If this is not possible, it will be acceptable for the entity to provide a date for these payments that is the same as other (local) payments shown in the pay event.

    Example 1 What happens when an assignee is one month in arrears

    BigMultinational plc has a presence in several countries including Australia.

    In preparation for a large project, 35 BigMultinational plc employees are seconded from South Africa to Australia between 27 July 2019 and 26 March 2020. These employees are paid through a payroll in South Africa, with a shadow payroll maintained in Australia for the purposes of tax compliance.

    On 27 August, salary is paid through the South African payroll. Data about the 35 seconded employees is sent to Australia, and is processed through the Australian shadow payroll on 5 September.

    BigMultinational plc is required to submit an STP report to the ATO showing the salary paid to the 35 seconded employees on 27 August. The law states that this report is due to be submitted on or before 27 August.

    However, the ATO has granted concessional reporting for shadow payroll arrangements in STP reporting by granting a due date deferral until the end of the calendar month after the payment date. This means that the due date for BigMultinational plc to submit an STP report showing the salary paid to the seconded employees on 27 August is extended to 30 September.

    On 20 September, salary is paid through the Australian payroll to other employees. BigMultinational plc prepares and submits an STP report on 20 September which includes both:

    • the payment of salary through the Australian payroll on 20 September
    • the shadow payroll values relating to the payment of salary to the 35 seconded employees on 27 August.

    BigMultinational plc met its reporting obligations in STP when it included its inbound assignees in the same STP report as their local employees, the shadow payroll values can be shown in the STP report as payments that were made on 20 September.

    End of example

    June payments

    You will be able to submit the final submission for a financial year, relating to payments made in June, this can be made in two ways, either:

    • lodging a separate pay event for inbound assignees which identifies the relevant payments as having been made in June
    • lodging an update event which incorporates the June payments into the year-to-date amounts for each employee.

    The final submission may also be used for the purpose of finalising STP reporting for the financial year. The final submission for a year will be due by the same date as the finalisation is due.

    We understand that if you submit June payment information using an update event you will not submit a pay event during the month of July.

    Reasonable estimates

    There may be some situations where full compensation information is not available in time for you to meet your STP reporting obligations. In these situations, you can make a reasonable estimate of the information to report.

    Estimated information will need to be corrected before you submit a finalisation declaration in relation to the inbound assignee for the financial year.

    What constitutes a reasonable estimate will depend on the situation. For example if:

    • an accurate currency conversion rate is not available, using the latest available rate or an average rate to determine the reportable amounts until the rate is available
    • receipt of information from overseas is delayed but the employee has previously received a regular monthly salary with minimal adjustment, reporting the payment of that salary in continuation of the pattern and making any adjustments (if required) in a future report when the information is received
    • there is uncertainty about how to classify an amount within payroll, making a judgment about whether to include or omit that amount and correcting (if required) when the uncertainty is resolved.

    Example 2: How to apply reasonable estimates

    Michael is seconded to Australia for work. He is only paid out of the payroll in his home country, and a shadow payroll is maintained in Australia by his Australian host.

    Every month, Michael is due to receive a salary of US$10,000. There are regular deductions that, due to their classification within payroll, mean the gross payment reportable in STP by the Australian host is consistently US$9,200 (converted to Australian dollars). There are occasional irregular variances to the amount, for various reasons.

    In March 2020, an administrative error in Michael’s home country results in his compensation information not being sent to his Australian host. His Australian host knows Michael has been performing work, and was due to receive a salary.

    Michael’s Australian host makes a reasonable estimate of the amount to include in their STP report, based on the pattern of previous reporting.

    Later, they discover that Michael was in fact paid a higher amount due to a scheduled salary increase. In the next STP pay event they submit, they include Michael’s regular salary and correct their previous reporting by including the additional amount which was omitted from their estimate.

    End of example

    Extensions to the concessional period

    We expect that most entities operating shadow payroll arrangements will be able to report through STP by the end of the next calendar month after the payment date. In circumstances where an entity can't meet the requirements, they will need to request additional time.

    Any request for additional time will need to include supporting material to demonstrate the reasons the STP ‘payday’ reporting cannot be completed before the end of the following calendar month.

    A request based solely on timing (for example, incompatible pay cycles that result in an Australian host holding data for an extended period of time before acting on it) are unlikely to be successful.

    We will assess these requests on a case-by-case basis.

    Example 3: Applying for an extension to the concessional period

    There are two businesses, XYZ Co and LMNOP Ltd. They both think that they are unable to submit STP reporting in relation to their shadow payroll managed employees by the end of the calendar month following payment.

    They each submit a request to the ATO for two weeks in addition to the existing concession.

    XYZ Co’s request includes the following supporting information:

    • the employees concerned are typically paid from a London based payroll on the 28th of each month
    • compensation information is generally received in Australia by the 8th of each month, which is after the cut-off for the Australian payroll on the 10th of each month
    • the compensation information is expressed in the English language, in Australian currency.

    XYZ Co’s request does not include information about why it is not possible to prepare and submit the required STP reporting in the remaining three weeks before the STP reporting is due at the end of the month.

    LMNOP Ltd’s request includes the following supporting information:

    • the employees are typically paid from a Mongolian based payroll on the 28th of each month
    • compensation information is generally received in Australia by the 15th of each month, which is ahead of the cut-off for the Australian payroll on the 27th of each month.
    • the compensation information is expressed in the Mongolian language and in Mongolian currency.

    LMNOP Ltd has implemented a process for obtaining Mongolian to English business record translation services. This process requires up to 12 business days to complete.

    LMNOP Ltd has internal process controls to ensure the translated compensation information is processed within one week, and indicates that STP reporting will be accomplished out-of-cycle with the Australian payroll.

    XYZ Co’s request is unlikely to be successful, as they have not been able to demonstrate to us why the compensation information received on the 8th of the month cannot be included in STP reporting before the concessional due date.

    LMNOP Ltd’s request is likely to be successful, as they have been able to demonstrate to us the reasons why they are unable to submit STP reporting before the concessional due date, and that they have processes in place to minimise the additional time required.

    End of example

    How to apply for additional time

    You can apply for additional time by:

    • logging in to the Business Portal
    • selecting Manage employees then STP deferrals and exemptions.

    From the STP deferrals and exemptions form choose ‘Recurring deferral’ and complete the following information:

    • start and end date – the period of time for which the extension to the concession will apply. The period end date cannot exceed the financial year in which the application is made.
    • number of additional days required to lodge each report – the number of days in addition to the existing concession period
    • number of employees currently on payroll – only the number of employees subject to shadow payroll arrangements
    • reason – choose ‘Other special circumstances’
    • describe the special circumstances – enter ‘Shadow payroll – please see attached’
    • attach supporting documentation – provide supporting material to demonstrate the reasons you need additional time to report.

    Your registered agent can also apply using the above instructions by logging in to:

    • Tax or BAS Agent Portal – select Client’s employer obligations then STP deferrals or exemptions
    • Online services for agents – select Business then STP deferrals and exemptions.

    The end of year process

    If you report via STP, you need to make a finalisation declaration through STP.

    A finalisation declaration may be included in the final pay event, or may be submitted separately through the submission of an STP update event. Where a finalisation declaration is made separately using an update event, it must be done by the specified date:

    • for the 2018–19 financial year, 31 July 2019
    • for the 2019–20 financial year and beyond, the 14 July following the end of the relevant financial year.

    See also:

    Concessional finalisation due date for inbound assignees

    Where a finalisation declaration is made in relation to a shadow payroll arrangement, the declaration must be done by the specified date:

    • for the 2019–20 financial year, 14 September 2020
    • for the 2020–21 financial year and beyond, the 14 August following the end of the relevant financial year.

    Example 4: How to apply concessional finalisation due date

    BigMultinational plc has a presence in several countries including Australia.

    In preparation for a large project, 35 BigMultinational plc employees are seconded from South Africa to Australia between 27 April 2020 and 26 March 2021. These employees are paid through a payroll in South Africa, with a shadow payroll maintained in Australia for the purposes of tax compliance.

    On 27 June, salary is paid through the South African payroll. Data about the 35 seconded employees is sent to Australia, and is processed through the Australian shadow payroll on 5 July.

    BigMultinational plc is required to submit an STP report to the ATO showing the salary paid to the 35 seconded employees on 27 June. The law provides that this report is due to be submitted on or before 27 June.

    However, the ATO has granted concessional treatment for shadow payroll arrangements by granting a due date deferral. This means the due date for BigMultinational plc to include these June payments in their STP reporting is extended to 14 August.

    On 20 July, salary is paid through the Australian payroll to other employees. BigMultinational plc prepares and submits a Pay Event showing the payment of salary through the Australian payroll on 20 July, but not the shadow payroll values.

    On 3 August, BigMultinational plc prepares and submits an update event which:

    • updates the year-to-date amounts for each of the 35 seconded employees to include the shadow payroll values relating to the payment of salary on 27 June
    • updates the year-to-date amounts for each of the 35 seconded employees to incorporate any reconciliation adjustments or corrections required
    • includes a finalisation declaration for each record.

    BigMultinational plc has now met its reporting obligations in STP.

    End of example
    Last modified: 08 Jul 2019QC 59487