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Businesses and employees must ensure they are aware of the potential implications of working offshore to avoid unexpected liabilities, says a tax partner.
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HLB Mann Judd flags tax traps for clients working offshore
21 March 2024
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It is important Australians analyse their tax situation before moving offshore to work, even temporarily, or if they are returning to Australia after working overseas for a period, to avoid unexpected taxation liabilities, warns Peter Bembrick, tax partner at HLB Mann Judd Sydney.
Following the pandemic, Bembrick said there are now more employees working remotely from any location and some Australians have taken advantage of more flexible policies to work abroad.
However, both businesses and employees need to be aware of the potential tax implications of remote working arrangements, he said.
Bembrick said there are three situations where Australians might need to pay extra attention to personal taxation.
The first is where an employee is living in Australia and their job is based in Australia, but they spend some time in another country as part of their work.
“Depending on their circumstances, the time spent overseas and the nature of their employment, they could be liable for personal income tax in the foreign country,” said Bembrick.
"In other situations, we might see an Australian working for an overseas company but living here. Their foreign employer might believe they are doing the right thing and deducting income tax for that employee in the other country, but the ATO might view their tax situation differently and think the employee should be paying tax at home.
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“You can’t necessarily trust your employer to know all the taxation rules that govern the income taxation of employees,” he said.
On the other hand, an employee who is Australian and working for an Australian company may need to assess their tax situation if they relocate overseas and work remotely for an extended period, or even temporarily, he said.
“That employee may potentially be liable for income taxes abroad, rather than in Australia. In those situations it is vital for them to discuss the situation with their employer to avoid tax being deducted and paid to the ATO which may be difficult to claim back in their Australian tax return,” he said.
Bembrick stressed that working in another country, even for a few months at a time, requires careful thought and planning with a taxation expert if people want to avoid being hit with an unexpected tax bill on their return to Australia or in another country.
“Moving around the globe and working remotely holds its attractions and that flexibility can be a big drawcard of working for an international employer. But it may require careful planning to avoid being hit by a potentially large personal tax bill,” he said.
“Companies and individuals should get specific advice both in Australia and in relation to the country to which the person is moving as there may be several taxation factors to consider, both for businesses and for employees.
It is important this planning is done with a taxation adviser well in advance of any move offshore.
Other complications can arise where an employee has accrued pension savings abroad, he said.
“The pension system in the UK or the US, for example, can create complex tax consequences for locals who worked overseas but are coming back to Australia to live,” he explained.
“People who have been living and working overseas, often on an attractive income, may need to consider how to transfer their pension savings back into the Australian superannuation system.
Another common situation is where people have changed tax residency and paid tax in another country, he said.
“They may be able to claim a credit for the foreign tax paid upon their return but only if they have the proper records and structures in place,” Bembrick stated.
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