Australia: Modified PAYG withholding processes require immediate action from foreign employers

Global Watch ()

The Australian Tax Commissioner has for many years authorised foreign employers to vary to nil the Pay-As-You-Go (PAYG) withholding obligations in respect of salary or wages paid from a foreign payroll to assignees working in Australia. The Australian PAYG withholding rules give the Commissioner discretion to reduce the prescribed amount of PAYG withholdings which ordinarily apply to salary or wages of employees working in Australia. The Commissioner has previously exercised this discretion on the condition that the employer agrees to meet the assignee’s end of year Australian tax liability, e.g., for ‘tax equalised’ employees, or where the employer is prepared to put an arrangement in place to ensure that the tax liability will be paid.

Recently, the Commissioner has reviewed this practice following concerns raised by senior Australian Tax Office (ATO) staff. The Commissioner indicated initially that no further variations would be granted, and that the ATO would begin on July 1, 2014 to enforce the PAYG withholding obligations in respect of foreign employers and their assignees working in Australia.

Following consultation on the proposed changes, the ATO has agreed with PwC’s suggestions on how to retain the PAYG withholding variation for foreign employers going forward. Affected foreign employers should consider the actions that they need to take as all such employers will likely have to change their processes in some way.