Effective July 1, 2014, the Pay-As-You-Go (PAYG) withholding variation process will change for foreign employers with employees working in Australia. Employers with employees on home country payrolls will need to make new PAYG withholding variation applications.
The Australian Taxation Office (ATO) has changed the Pay-As-You-Go (PAYG) withholding variation process for foreign employers with employees working in Australia, with effect from 1 July 2014.1
With the upcoming cessation of all existing PAYG variation arrangements, foreign employers and their tax / payroll service providers will need to have in place new practices and procedures in order to comply with the new PAYG withholding variation requirements. This means employers should now be undertaking a review of employees who remain on home country payrolls while on assignment to Australia to determine what changes may need to be made in advance of the 1 July 2014 start date.
Where a foreign employer has employees working in Australia and those employees remain on their home country payrolls, the foreign employer may apply to the Commissioner to vary to nil, the PAYG withholding requirements in respect of the taxable salary and wages of those employees.
The purpose of the PAYG withholding variation is to ease the compliance administrative requirements for foreign employers with employees working in Australia who remain on the home country payroll.
A further benefit is that foreign employers have been able to submit a single PAYG withholding variation application for all relevant employees. Where an employee satisfies the necessary criteria, the foreign employer is absolved from withholding PAYG on taxable remuneration paid to the employee. The Australian tax liability is instead settled following submission of the relevant employee’s Australian income tax return.
A condition for obtaining the PAYG withholding variation is that the foreign employer must undertake to settle the relevant employee’s Australian tax liability in the event of any default by the employee.
The ATO is currently notifying foreign employers and their tax agents that all existing PAYG variation arrangements will cease on 30 June 2014.
A new application will need to be lodged with the ATO for the variation to continue beyond 30 June 2014. Each application will be valid for two years.
A key new additional requirement is that the Australian Tax File Number (TFN) of each relevant employee must be provided for all new applications. Therefore, a foreign employer will need to lodge an additional application for each new relevant employee once the employee’s TFN has been obtained.
Based on discussions between the KPMG International member firm in Australia and the ATO, it is understood that an employer should apply for the PAYG withholding variation in a timely manner following the relevant employee’s arrival in Australia.
The ATO will not accept applications for new arrivals to Australia on an annual basis.
In this regard, it is important to note that where there is no PAYG variation in place, the foreign employer is required to remit PAYG withholding to the ATO in respect of salary and wages paid to employees working in Australia. Where no TFN is provided by the employee to the employer, the required PAYG withholding rate is 46.5 percent.
1 For more information, visit the ATO website at: http://www.ato.gov.au.
For further information or assistance, please contact your local IES professional, or one of the following IES professionals with the KPMG International member firm in Australia:
+61 2 9335 8550
+61 3 9288 5279
+61 8 8236 3234
+ 61 8 9278 2053
The information contained in this newsletter was submitted by the KPMG International member firm in Australia.
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