EXPATS: IN & OUT OF AUSTRALIA - Payroll
Transcript of EXPATS: IN & OUT OF AUSTRALIA - Payroll
EXPATS: IN & OUT OF AUSTRALIA
19 October 2017
Alice Chudowolski– Senior Manager, Employment Taxes James Ortner – Senior Manager, Global Mobility
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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
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Ordinary Resident
Temporary Resident
Expat 101: Australian tax residence
Non-resident
How does tax residence impact payroll?
RESIDENT
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Expat 101: Australian tax residence cont.
Resident (including Temporary Resident)
• Maintains place of abode in Australia
• Continuing strong ties (family and economic) in Australia
Non –resident
• Reside out of Australia 2+ years
• Family will accompany• Sets up overseas place of
abode• Spends less than 183 days
Inbound Outbound Ordinary Resident
• Australian citizen or permanent resident
• Spends greater than 183 days
Temporary Resident
• Temporary visa holder e.g. 457 visa holder
• Spends greater than 183 days
Non – resident • Spends less than 183 days
Ordinary Resident
Worldwide employment income
Temporary Resident
Worldwide employment income
Non-resident
Australian sourced employment income
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Expat 101: Australian payroll implications
Residency statusPayroll implications
Taxable employment income
Resident YesWorldwide employment
income
Temporary resident YesWorldwide employment
income
Non-resident YesBased on Australian
workdays*
► Payroll implications exist for all residency types► You need to have access to expat compensation data
*Unless Double Tax Agreement (DTA) exemption is available
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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
USA39.6% Federal and State
tax rate variesUS 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
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Expat 101: Foreign payroll implications
CountryWithholding tax required
Penalties for non-withholding
UK
USA
New Zealand
Singapore × n/a
Hong Kong × n/a
► 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
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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.
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Tax Equalised
Expat 101: Assignment Policies
Typically HOME
country payroll*
Typically HOST country payroll
PAYROLL LOCATION
POLICY TYPES
Local (Plus)
Short Term Business Travellers
Permanent move
Typically HOME
country payroll
*May be a split payroll
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Expat 101: Assignment Policy and Payroll
Tax Equalised
Hypothetical tax payroll withheld
Benefits provided
Employer may fund tax liabilities in host country
Local (Plus)
Short Term Business Travellers
Permanent move
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
Home or Split between Home
and HostHost Payroll
PAYROLL LOCATION
Home payroll
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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
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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
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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 2018.
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
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Disruption
Payroll Systems Workforce Changes
Mobile WorkforceBusiness Transformation
Disruptors to Employment Taxes
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Tax resident
Superannuation Guarantee
Payroll tax
Tax non-resident
How does tax residency impact employment taxes?
Residency implications
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FBT - Expat Benefits
Risks!
• LAFHA (International)No FBT Exemption
• Private Health InsuranceSubject to full FBT
• Superannuation to a Foreign FundPermanent Resident
Opportunities
• LAFHA (Domestic)Up to 12 months FBT exempt
• Leasing of Household GoodsCan be FBT Exempt
• Children’s Education CostsCan be FBT Exempt
• Home leave50% FBT reduction for one annual trip
Look out for theseOpportunities and Risks
when managing Expat Benefits!
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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!
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Commuting vs. Business Travel vs. LAFH
Opportunity!Apply to the ATO to amend your FBT returns and get excess tax refunded
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FBT - Saving Opportunity
Benefits:► Net saving to employer► Most commonly used on company provided vehicles► Can also be used on health insurance benefits
Once-off grossed up payment
After-tax contribution
Employer Employee
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Opportunity Employee overseas
Time of grant
Opportunity Employee overseas
Time of vest
Payroll Tax – Employee Share Schemes
► You choose the taxing point: Grant or Vest/ Exercise
► Choice per person, per plan
► Consider the location of employee can result in payroll tax savings:
► When to choose Grant
► When to Choose Vest/ Exercise
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Employment Taxes - Common Issues
Fringe Benefits Tax
LAFHA exemptions for overseas employees
Foreign Payroll
Superannuation Guarantee
Certificate of Coverage
Senior foreign executive exemption
Payroll Tax
Six month rule
Nexus provisions
Workers Compensation
Knowing when to get coverage
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► 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
Cash back opportunities - Are your expat numbers increasing?
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► Small business grant
► Small businesses (<$750,000)
► Hire new employees after 1 July 2015
Cash back opportunities – cont.
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Best Practice – Payroll Data Analytics What can it do?
PAYG Withholding &
Superannuation
Payroll Tax
Contractors
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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.
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Summary: FBT Exempt Relocation Benefits
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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
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Case Study – Tax and Payroll implications
Considerations Australia Implications Basis
Residence Tax resident 2 year assignment
Tax implications Temporary resident and taxable on worldwideemployment income
457 temp work visa
Payroll Worldwide employment income is reportable Temporary resident
Pay As You Go (PAYG) A shadow payroll should be set up to satisfy PAYG obligations
Company has obligation as individual is taxable
Payroll Tax Payroll tax should be paid Tax resident
Fringe Benefits Tax (FBT) FBT should be paid on taxable benefits provided by both US and Australia
Tax resident
Superannuation Superannuation should be paid unless exempt (ie CoC or senior executive)
Tax resident
Equity (RSUs) Taxable at vest however no PAYG withholding required. Individual reports via tax return
Equity held whilst on Australia assignment
Double Tax Agreement (DTA) US will tax employment income including equity. Double taxation arises and DTA should be referenced to exempt income or provide relief.
US citizens are subject to tax on worldwide income.
Note: Separate US tax and payroll implications exist