Edited version of private advice

Authorisation Number: 1051807932082

Date of advice: 22 February 2021

Ruling

Subject: Employee obligations

Question 1

Does the Company have a liability to Fringe Benefits Tax (FBT) on any non-cash payments it provides to the taxpayer when they performed services overseas?

Answer

Yes.

Question 2

Does the Company have an obligation to pay PAYG Withholding on wages paid to the taxpayer when they performed services overseas?

Answer

Yes.

This ruling applies for the following period:

Financial year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Company is an Australian incorporated company.

The Company has an employment relationship with a taxpayer who is going to work overseas.

The Company is entering into an employment contract with a Government department in that country.

The taxpayer's contract was obtained through an exchange program

The Company will invoice the Government department in that country for services performed by the taxpayer.

All salary and employer-paid benefits will be paid to the taxpayer by the Company.

The employee is considered an Australian Resident for tax purposes.

The employee left Australia to commence work and establish a home overseas.

The employee and her family returned to Australia due to world events happening.

The Company established an overseas bank account for business income and expenses.

The Company will not be doing any other business during overseas contract.

All business was conducted outside Australia.

The taxpayer is physically required to be overseas to perform their duties and is intending on relocating when it is safe to do so.

Relevant legislative provisions

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953

Subsection 12-1(1) of Schedule 1 to the Taxation Administration Act 1953

Subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997

Reasons for decision

Question 1

Summary

The Company will have a liability for FBT on any non-cash payments it provides to the taxpayer while they performed services overseas.

Detailed reasoning

A 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

There are various benefit types that are specifically exempt or attract a concession or reduction in taxable value from the definition of a "fringe benefit".

An obligation to pay FBT will only arise if there is an obligation to withhold from payments made to an employee under PAYG Withholding legislation.

We have determined that your employee who has spent some time in Canada will be subject to the PAYG withholding legislation. Following on from that, should you provide this employee with any fringe benefits, you as the employer will have a liability to pay the fringe benefits tax.

Question 2

Summary

The Company will have an obligation to pay PAYG Withholding on wages paid to the taxpayer while they were performing services overseas.

Detailed reasoning

Section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that under the PAYG withholding system an entity must withhold amounts from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Subsection 12-1(1) of Schedule 1 to the TAA however, provides that an entity need not withhold an amount under section 12-35 from a payment if the whole of the payment is exempt income of the recipient.

Section 12-1 of Schedule 1 of the TAA 1953 provides a number of exceptions to withholding. An entity need not withhold an amount under Subdivision 12-B, Subdivision 12-C or section 12-120 or 12-190 from a payment if the whole of the payment is not assessable income and is not exempt income of the entity receiving the payment.

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.

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.

Foreign earnings that do not meet any of the exemption conditions are assessable income and subject to PAYG withholding requirements. These earnings should be included in your employee's income tax return as assessable income. They may be entitled to a foreign income tax offset for amounts of foreign tax paid.