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Subject: Pay as you go withholding tax - non resident
Question:
As an employer, do you have to withhold any Pay As You Go (PAYG) amounts from the salary and wages paid to a non-resident employee working outside Australia?
Answer:
No
This ruling applies for the following period
Year ending 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
You have an employee who is a non-resident.
The employee has made another country their permanent place of abode.
The employee whilst working wholly in an overseas location is paid salary and wage income by you.
You are an Australian resident partnership.
Relevant legislative provisions
Taxation Administration Act 1953 section 12-1
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 6-20
Reasons for decision
Subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes the ordinary and statutory income derived directly or indirectly from all sources.
Subsections 6-5(3) and 6-10(5) of the ITAA 1997 limits the assessable income of an individual who is not a resident of Australia to:
· ordinary and statutory income derived directly or indirectly from all Australian sources, and
· ordinary and statutory income that a provision includes in assessable income on some basis other than Australian source.
It is generally considered that the source of salary and wage income is where the activity is undertaken.
As your employee is working in an overseas country, it is considered that the source of their salary and wage income is from the overseas country. Therefore their salary and wage income does not have an Australian source.
Subsection 6-20(2) of the ITAA 1997 makes ordinary income exempt income where it is excluded from being assessable income.
As your employee is a non resident and the source of their income is overseas, it is excluded from being assessable income and therefore is exempt income.
Under section 12-1 of Schedule 1 to the Taxation Administration Act 1953 an employer need not withhold an amount from payment of salary, wages, commissions, bonuses or allowances it pays to an individual as an employee where the whole of the payment is exempt income of the employee.
As the salary and wage income paid by you as the employer is exempt income of the employee you do not need to withhold an amount from these payments.