Rebecca Armour and Darshana Elwela of KPMG New Zealand explore the key tax issues for Australian employers with placing their employees in New Zealand (NZ).
In today’s inter-connected business world, it is increasingly important to leverage talent in order to optimise cross-border business opportunities.
International assignments, transfers and secondments are ever more common place.The key tax issues for Australian employers placing their employees in New Zealand (NZ) are explored below.
This will determine employers’ NZ tax obligations, if any. Under the Double Tax Agreement (DTA) between Australia and NZ, employees can work in NZ for up to 90 days in any 12 month period without triggering any income tax or employer obligations.
However, care is needed where employees will be present in NZ for longer, particularly if all or part of their remuneration costs will be borne directly or indirectly by the NZ business, as NZ tax obligations (e.g. pay as you earn (PAYE) withholding) could be triggered from day one.
If the duration of the stay is 183 days or less in a 12 month period, and the costs are borne wholly by the Australian business, NZ generally cannot tax the employee. However, if the employee is expected to be in NZ for longer than 6 months, the Australian employer will need to register for NZ PAYE (and fringe benefits tax, if applicable). They may also need to deduct NZ superannuation and other charges (e.g. accident compensation levies).
If an employee exceeds the 183 days count test, a NZ 'Permanent Establishment' (PE) for the Australian employer may also arise under the DTA. If so, any profit attributable to the employee’s NZ work (i.e. contract or project) will be taxable to the PE. The DTA test also aggregates time spent in NZ by any other employees of the Australian business, who are providing services as part of the same project or contract.
It is critical that Australian employers take stock of the NZ tax implications of placing staff across the Tasman. Please contact us, if you require further information.