The Australian Taxation Office (the ATO) has recently issued their final Taxation Determination TD 2011/1 which indicates a non-resident entity will generally be subject to PAYG withholding obligation if there is a sufficient connection with Australia.

Where a non-resident entity has a sufficient connection with Australia to have an obligation to withhold from payments made to an Australian resident for work performed overseas, it will also have obligations under the Fringe Benefits Tax Assessment Act (FBTAA)  in relation to any benefit provided to that person in respect of the employment of that person.

In these circumstances, the payment will be 'salary or wages' for the purposes of the terms 'current employer' and 'current employee' as defined in subsection 136(1) of FBTAA. As a result, the non-resident entity and the Australian resident will be an 'employer' and an 'employee' respectively as these expressions are defined in subsection 136(1) of the FBTAA.

The following example is taken from the tax Determination:

Sheree is an Australian resident for tax purposes. She is employed as a project manager working in the Australian operations of a non-resident consultancy company. The company transfers her overseas for 5 months to work on a new consultancy project. The company continues to carry on business and maintains a physical presence in Australia. Sheree's wages are assessable income in Australia. The company has an obligation to withhold an amount for Australian tax purposes from the salary paid to her.

Sheree is provided with a car while overseas and is reimbursed for some additional living expenses. As amounts must be withheld from her salary, her employer will have obligations under the FBTAA in respect of the benefits provided to her. Sheree is not required to include these in her Australian assessable income.

The ATO believes a non-resident entity will have a sufficient connection with Australia if they have a physical business presence in Australia. This will be the case if the non- resident entity carries on an enterprise or income producing activity (or part thereof) in Australia and has a physical business presence in Australia.

Questions
Please contact Michael van Schaik, Associate Director, Employment & Remuneration Services - phone 61 (03) 8635 1835.


Contact

Michael van Schaik
T +61 3 8635 1800
mvanschaik@moorestephens.com.au

www.moorestephens.com.au