EXPATS: IN & OUT OF AUSTRALIA

Transcription

1 EXPATS: IN & OUT OF AUSTRALIA 1 November 2018 Upen Goswami Manager, Employment Taxes Rob Xie Manager, Global Mobility

2 Overview 1. Expat 101 Australian tax residence and payroll implications Foreign tax and payroll implications Double Tax Agreements (DTAs) Assignment policies and payroll considerations Shadow Payroll Special Payments 2. Employment Taxes FBT, Payroll tax, Superannuation Guarantee and Workers Compensation Savings / refunds / cash back opportunities 3. Case Study Page 2

3 Expat 101 Rob Xie

4 Expat 101: Australian tax residence Resident Temporary Resident Foreign resident How does tax residence impact payroll? Page 4

5 Expat 101: Australian tax residence cont. Inbound Outbound Resident Resides in Australia Australian domiciled 183 days or more Member or eligible employee of specific Commonwealth Superannuation funds Resident (including Temporary Resident) Maintains permanent place of abode in Australia Retains strong ties (e.g. family and economic) to Australia Temporary Resident Foreign resident Temporary visa holder e.g. TSS visa holder 183 days or more 183 days or more but usual place of abode is outside Australia and does not intend to take up residence in Australia Foreign resident Resides out of Australia 2+ years Family (if any) accompanies Establishes permanent place of abode overseas 183 days or less Page 5

6 Expat 101: Australian payroll implications Payroll implications exist for all residency types You should ensure you have access to all compensation data, including any amounts paid offshore How is employment income taxed? Resident Worldwide Temporary Resident Worldwide Foreign resident Australian sourced* *Unless Double Tax Agreement (DTA) exemption is available Page 6

7 Expat 101: Foreign tax implications Each country has their own rules to assess taxability of an individual The rules may be based on tax residence, day count thresholds or physical presence Examples Country Top tax rate Considerations UK 45% Taxable from day 1 unless exemption applies Statutory residence test applies US 37% Federal, plus variable State tax rates US Citizens/Green Card holders remain taxable irrespective of time spent in the US New Zealand 33% Taxable from day 1 unless exemption applies Singapore 22% Taxable if more than 183 days, but filing implications may arise at a lower day count Page 7

8 Expat 101: Foreign payroll implications Employers may have foreign payroll implications based on the requirements of a host country Withholding tax and social security may need to be calculated on worldwide income Your payroll teams overseas (or in Australia) need to have access to full compensation data, including cash and non-cash benefits Country Withholding tax required Penalties for non-withholding UK US New Zealand Singapore n/a Page 8

9 Expat 101: Double Tax Agreements (DTA) Bilateral agreements between two countries addressing cross-border taxation Provides guidance on: residence determinations; and alleviation of double taxation. May generally allow for remuneration to be exempt from tax in a host country if presence is less than 183 days and other conditions met Australia adopts Economic Employer concept If services are integrated into the activities of an Australian entity more than the overseas entity, then the Australian entity may be the economic employer. This means that no exemption is allowed. Page 9

10 Expat 101: Assignment Policies TYPICAL POLICY TYPES Tax Equalised Local (Plus) Permanent move Short Term Business Travellers PAYROLL LOCATION ALIGNMENT Typically HOME country payroll* Typically HOST country payroll Typically HOME country payroll *May be a split payroll Page 10

11 Expat 101: Assignment Policy and Payroll Tax Equalised Local (Plus) Permanent move Short Term Business Travellers Home or Split between Home and Host PAYROLL LOCATION ALIGNMENT Host Payroll Home payroll Hypothetical tax withheld Benefits provided Employer should fund tax liabilities in host country Benefits provided Employer may fund tax liabilities on certain benefits Usually same as resident employee may have relocation benefits Benefits provided Employer should fund tax liabilities in host country Page 11

12 Expat 101: Shadow Payroll Shadow payroll is a notional payroll Allows employers to meet withholding tax obligations when their employees are paid through home payroll Gross up of tax liability = no FBT Operation of shadow payroll facilitates other employer obligations: Pay-As-You-Go (PAYG) withholdings Payroll tax Superannuation Fringe Benefits Tax Key: payroll has access to compensation and benefits data from home and host locations Page 12

13 Expat 101: Special Payments Employee Share Schemes (Equity) Each country has specific tax rules on timing of taxation and amount subject to tax Australia has no PAYG withholding tax on equity Other countries have withholding tax on equity (e.g. New Zealand) Some companies can assist employees manage the cashflow impact of taxable equity events even if no actual tax withholdings are required There may be tax due on equity for individuals in both home and host locations Trailing Bonuses Bonuses paid AFTER employee leaves country may be subject to withholding tax There may be tax due in both home and host countries Termination/Redundancy There are country specific tax rules and concessions for termination payments There may be tax due in both home and host countries Page 13

14 Employment Taxes Upen Goswami

15 Disruptors to Employment Taxes Payroll Systems Workforce Changes Disruption Business Transformation Mobile Workforce Page 15

16 Residency implications Even for performing services outside Australia? Superannuation Guarantee Tax resident Tax non-resident Entity pays TR - Physical Presence? - Income producing activities? Payroll tax Tax non-resident Performs services in Australia? Page 16

17 Residency implications Services performed in Australia Resident Payer Non-resident Payer Resident Worker PAYG withholding & FBT Superannuation Exemptions? Exemptions? Payroll Tax Grouping Provisions vs Threshold? Non-resident Worker PAYG withholding & FBT Working/Business travel? Working/Business travel? Sufficient connection? Superannuation Exemptions? Exemptions? Payroll Tax Nexus Provisions? Nexus Provisions? Grouping Provisions vs Threshold? Grouping Provisions vs Threshold? Services performed wholly outside Australia Resident Payer Non-resident Payer Resident Worker PAYG withholding & FBT Working/Business travel? Working/Business travel? Sufficient connection? Superannuation Working/Business travel? X Exemptions??? Payroll Tax 6 month rule? 6 month rule? Non-resident Worker PAYG withholding & FBT X X Superannuation X X Payroll Tax X X *The above chart is for illustration purposes only. Page 17

18 FBT - Expat Benefits Opportunities LAFHA (Domestic) Up to 12 months FBT exempt Risks! LAFHA (International) No FBT Exemption Leasing of Household Goods Can be FBT Exempt Children s Education Costs Can be FBT Exempt Home leave 50% FBT reduction for one annual trip Look out for these Opportunities and Risks when managing Expat Benefits! Private Health Insurance Subject to full FBT Superannuation to a Foreign Fund Permanent Resident Page 18

19 Commuting vs. Business Travel vs. LAFH v. Relocation Draft Ruling TR 2017/D6 Opportunity? Apply to the ATO to amend your FBT returns and get excess tax refunded Page 19

20 Summary: Temporary Assignments Benefits Benefit provided International mobility into Australia Domestic mobility within Australia LAFH food X * LAFH rent X * Leasing household goods X * Children education costs - Home leave - Relocation consultant Relocation costs (shipping, airfares etc.) Temporary accommodation?? * Individuals must maintain a home in Australia for their personal use for tax concessions to be available; 12 month max. Page 20 Copyright 2016 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

21 Summary: FBT Exempt Relocation Benefits LAFH Rules Page 21 Copyright 2016 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

22 Payroll Tax Employee Share Schemes You choose the taxing point: Grant or Vest/ Exercise Choice per person, per plan Opportunity Consideration Employee of the overseas location of an employee can result in payroll tax savings: Time of grant Opportunity Employee overseas Time of vest When to choose Grant When to Choose Vest/ Exercise Page 22

23 Cash back opportunities - Are your expat numbers increasing? NSW Jobs Action Plan Rebate Registered for payroll tax Hire new employees working in NSW Must apply within 90 days of hiring Rebate up to $6,000 $2,000 on the first anniversary and $4,000 on the second anniversary Register up to 30 June 2019 Applies separately to each employing entity Page 23

24 Cash back opportunities cont. NSW Small business grant Small businesses (<$850,000 in 2019 financial year) Hire new employees after 1 July 2015 Must apply within 60 days of hiring Rebate up to $2,000 Other States? TAS, VIC, SA Page 24

25 Employment Taxes - Common Issues Fringe Benefits Tax Superannuation Guarantee LAFHA exemptions for overseas employees Foreign Payroll Certificate of Coverage Senior foreign executive exemption Payroll Tax Workers Compensation Six month rule Knowing when to get coverage Nexus provisions Page 25

26 Single Touch Payroll - Foreign Employees Seconded to Australia by overseas nonresident employer entity Remuneration paid via shadow payroll Exempt from STP reporting Page 26

27 Automation and Analytics What can it do? Contractors Payroll Tax PAYG Withholding & Superannuation Page 27

28 Case Study Background UK citizen On assignment from UK to Australia for 2 years Tax equalised assignment Has a TSS temporary visa Will receive salary, bonus and cash payments via UK payroll Participates in an employee share scheme and will have Restricted Stock Units (RSUs) vest during assignment Assignment benefits provided by both UK and Australia entities Page 28

29 Case Study Tax and Payroll implications Considerations Australian Implications Basis Residence Tax resident 2 year assignment Tax implications Temporary resident and taxable on worldwide employment income TSS temp work visa Payroll Worldwide employment income is reportable Temporary resident Pay As You Go (PAYG) Payroll Tax Fringe Benefits Tax (FBT) Superannuation A shadow payroll should be set up to satisfy PAYG obligations Payroll tax should be paid (saving: RSUs taxing point to be at grant date) FBT should be paid on taxable benefits provided by both UK and Australia Superannuation should be paid unless exempt (i.e. CoC or senior executive) Employer has obligation as individual is taxable Tax resident Tax resident Tax resident Equity (RSUs) Taxable at vest; however no PAYG withholding required. Individual reports via tax return. Should consider application of assignment policy (e.g. tax equalisation) Equity held whilst on Australia assignment Note: Separate UK tax and payroll implications exist Page 29