Expats working remotely could face ATO tax slug

13 September 2022 Consultancy.com.au 2 min. read
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Expats who returned home to Australia during Covid-19 but chose to continue working remotely for overseas companies in lower tax jurisdictions could face a sizeable 2021-22 tax debt, warns Liam Telford, a tax director at RSM.

“The tax holiday some may have enjoyed over the past few years working remotely in Australia while paying lower taxes in a foreign country they could have returned to, may be at an end,” said Telford, who expects a significant number of returnees could be unwittingly caught out by updated Australian Taxation Office (ATO) guidance tightening previously relaxed tax treatments.

In early 2020, the ATO issued guidance (in line with the OECD) that no adverse tax implications would generally arise for employees or their employers because of employees being displaced from their usual place of residence due to Covid-19.

Liam Telford, Director, RSM

“However, the ATO has since updated its position, again in line with OECD guidance, to re-establish the tax goal posts by distinguishing, for multiple purposes, including tax residency, between people who could leave Australia, but chose not to, and people who were unable to leave due to circumstances beyond their control, such as border restrictions or a genuine lack of commercial flights,” said Telford.

“The onus is now on taxpayers to prove their circumstances warrant concessionary tax treatment. This could be problematic for individuals who may not have kept records proving why they had to remain in Australia.”

For example, while Hong Kong has maintained quarantine requirements for inbound travellers, the inconvenience of such measures will “now not be a relevant criterion”, said Telford.

The RSM expert, who earlier in his career worked for Deloitte and BHP, said foreign companies whose workers have remained in Australia by choice could also face additional tax on the money their employees earned for them due to permanent establishment rules.

“The most obvious example is employees concluding contracts on behalf of their employer while remaining in Australia, despite their ability to repatriate.”

Telford said Australians who have remained outside Australia since Covid-19 should also check whether their tax residency has ceased and the implications this could have, such as their foreign-sourced income being subject to tax in Australia, or any entities in which they have an interest being deemed a tax resident of Australia.

“Given the disruptions of the past few years some Australians could easily be caught out by the updated guidance of the Australian Taxation Office and should seek immediate expert taxation advice.”