EXPATS: IN & OUT OF AUSTRALIA

Transcription

1 EXPATS: IN & OUT OF AUSTRALIA 19 October 2017 Alice Chudowolski Senior Manager, Employment Taxes James Ortner Senior 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 James Ortner

4 Expat 101: Australian tax residence RESIDENT Ordinary Resident Temporary Resident Nonresident How does tax residence impact payroll? Page 4

5 Expat 101: Australian tax residence cont. Ordinary Resident Temporary Resident Inbound Australian citizen or permanent resident Spends greater than 183 days Temporary visa holder e.g. 457 visa holder Spends greater than 183 days Non resident Spends less than 183 days Resident (including Temporary Resident) Non resident Outbound Maintains place of abode in Australia Continuing strong ties (family and economic) in Australia Reside out of Australia 2+ years Family will accompany Sets up overseas place of abode Spends less than 183 days Ordinary Resident Worldwide employment income Temporary Resident Worldwide employment income Non-resident Australian sourced employment income Page 5

6 Expat 101: Australian payroll implications Payroll implications exist for all residency types You need to have access to expat compensation data Residency status Resident Temporary resident Non-resident Payroll implications Yes Yes Yes Taxable employment income Worldwide employment income Worldwide employment income Based on Australian workdays* *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 May be based on residence, day count thresholds or presence Country Top tax rate Considerations UK 45% If work days > 1 tax implication. Statutory residence test applies USA 39.6% Federal and State tax rate varies US Citizens/Green Card taxable else based on days present New Zealand 33% If work days > 1 tax implication Singapore 22% If days > 60 filing implication. If days > 183 tax implication Hong Kong 17% If work days > 1 tax implications Page 7

8 Expat 101: Foreign payroll implications Employers may have foreign payroll implications based on the requirements of each country Withholding tax and social security may need to be calculated on worldwide income Your payroll teams overseas need to have access to expat compensation data including benefits Country Withholding tax required Penalties for nonwithholding UK USA New Zealand Singapore n/a Hong Kong n/a Page 8

9 Expat 101: Double Tax Agreements (DTA) Bi-lateral agreements between two countries addressing cross-border taxation Provides guidance on: residence determinations; and alleviation of double taxation. May allow for remuneration to be exempt from tax in a host country if presence is below 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 POLICY TYPES Tax Equalised Local (Plus) Permanent move Short Term Business Travellers Typically HOME country payroll* *May be a split payroll PAYROLL LOCATION Typically HOST country payroll Typically HOME country payroll Page 10

11 Expat 101: Assignment Policy and Payroll Tax Equalised Local (Plus) Permanent move Short Term Business Travellers PAYROLL LOCATION Home or Split between Home and Host Host Payroll Home payroll Hypothetical tax payroll withheld Benefits provided Employer may 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 may fund tax liabilities in host country Page 11

12 Expat 101: Shadow Payroll Shadow payroll is a notional or phantom 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 that payroll has access to compensation and benefits data from home and host Page 12

13 Expat 101: Special Payments Employee Share Schemes (Equity) Equity has country 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 There may be tax due on equity for individuals in home and host locations Trailing Bonuses Bonuses paid AFTER individual 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

14 457 Visa Reform The Government announced that the Temporary Work (Skilled) visa (subclass 457 visa) will be abolished and replaced with the completely new Temporary Skill Shortage (TSS) visa in March The TSS visa programme will be comprised of a Short-Term stream of up to two years and a Medium-Term stream of up to four years and will support businesses in addressing genuine skill shortages Page 14

15 Employment Taxes Alice Chudowolski

16 Disruptors to Employment Taxes Payroll Systems Workforce Changes Disruption Business Transformation Mobile Workforce Page 16

17 Residency implications How does tax residency impact employment taxes? Superannuation Guarantee Payroll tax Tax resident Tax non-resident 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 FBT - Exempt Relocation Benefits Lease of Household Goods Temporary Accommodation Sale and/or acquisition of permanent residence Connection/ reconnection of utilities following relocation Relocation transport Relocation consultant Look & See trips FBT Savings! FBT Savings! Page 19

20 Commuting vs. Business Travel vs. LAFH Opportunity! Apply to the ATO to amend your FBT returns and get excess tax refunded Page 20

21 FBT - Saving Opportunity Once-off grossed up payment Employer Employee After-tax contribution Benefits: Net saving to employer Most commonly used on company provided vehicles Can also be used on health insurance benefits Page 21

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

23 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 23

24 Cash back opportunities - Are your expat numbers increasing? NSW Jobs Action Plan Rebate Full Time Equivalent (FTE) number of 50 or below Businesses that hire new employees Applies separately to each employing entity Rebate up to $6,000 $2,000 on the first anniversary and $4,000 on the second anniversary Register up to 30 June 2019 Must apply within 90 days of hiring Page 24

25 Cash back opportunities cont. Small business grant Small businesses (<$750,000) Hire new employees after 1 July 2015 Page 25

26 Best Practice Payroll Data Analytics What can it do? Contractors Payroll Tax PAYG Withholding & Superannuation Page 26

27 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 27 Copyright 2016 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

28 Summary: FBT Exempt Relocation Benefits Page 28 Copyright 2016 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

29 Case Study Background US citizen On assignment from US to Australia for 2 years Tax equalised assignment Under a 457 temporary visa Will receive salary, bonus and cash payments via US payroll Participates in an employee share scheme and will have Restricted Stock Units (RSUs) vest during assignment Assignment benefits provided by both US and Australia entities Page 29

30 Case Study Tax and Payroll implications Considerations Australia Implications Basis Residence Tax resident 2 year assignment Tax implications Temporary resident and taxable on worldwide 457 temp work visa employment income Payroll Worldwide employment income is reportable Temporary resident Pay As You Go (PAYG) A shadow payroll should be set up to satisfy PAYG obligations Payroll Tax Payroll tax should be paid Tax resident Company has obligation as individual is taxable Fringe Benefits Tax (FBT) Superannuation Equity (RSUs) Double Tax Agreement (DTA) FBT should be paid on taxable benefits provided by both US and Australia Superannuation should be paid unless exempt (ie CoC or senior executive) Taxable at vest however no PAYG withholding required. Individual reports via tax return US will tax employment income including equity. Double taxation arises and DTA should be referenced to exempt income or provide relief. Tax resident Tax resident Equity held whilst on Australia assignment US citizens are subject to tax on worldwide income. Note: Separate US tax and payroll implications exist Page 30