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  • #978942
    kathiemt
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    Here’s a thought. More and more you hear about people who are engaging overseas help in their businesses. I don’t mean occasional or casual help, but I’ve heard of people engaging someone full time.

    Now, if they engaged someone full time here in Australia, they’d be liable for taxes, insurances, Super, WorkCover and everything else that involves having an employee. What’s the go with those who choose to outsource to a ‘full time’ virtual worker who is overseas?

    I tried searching the ATO site without success for an answer on that one.

    I know, personally, when I’ve earned some income as a result of activities in the US, I’ve had to fill out a tax form and they do withhold some tax, although I doubt I’ll ever be able to put in a tax claim form.

    Does the Australian govt require the same of workers in other countries who are earning income from businesses here in Australia? And if so, do those businesses who are employing or engaging those overseas workers know this and are they required to fill out paperwork relating to that?

    #1110870
    Divert To Mobile
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    Thats a really good question.
    My guess is that there is no legislation to cover that yet.
    Hence, no tax, no super, no insurance, no awards etc.

    Steve

    #1110871
    James Millar
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    Divert To Mobile, post: 123351 wrote:
    Thats a really good question.
    My guess is that there is no legislation to cover that yet.
    Hence, no tax, no super, no insurance, no awards etc.

    Steve

    Sorry guys – our tax system is one of the most comprehensive and convoluted in the world. Yes it is covered. First look at PAYG withholding and then look at others forms of withholding. It’s normally one of these two.

    1. If they are an employee per standard tests and they don’t quote a TFN then it’s 46.5% PAYG withholding on employer. Obviously few foreign employees will have TFN’s.

    2. If they are a contractor and they are not entitled to an ABN because they don’t carry on an enterprise here then it may be a royalty withholding tax matter (the definition of royalty under Australian tax law extends far beyond what you would expect. The provisions have become a bit of a “catch all”). The RWT rate depends in the contractors tax jurisdiction. From 30% down to nil.

    The recent trends in cross border small business transacting pose some interesting challenges for Australian tax law. People jump on freelancer and regularly pay foreign entities for services provided. Are those services “royalties” within the meaning of RWT? Are affiliate payments paid from Australia royalties for the purpose of RWT? These international tax laws were considered the domain of big business only five years ago and increasingly we are seeing SME’s exposed. Just keep in mind that withholding tax is imposed on the payer so the ATO will come after you and not the payee that’s based overseas. Moral is get advice before you pay the money out. We had a client two years ago with an unexpected RWT liability of more than $1m AUD and they failed to withhold it from the payee overseas. Do you think the foreign entity paid the money back to our client here in OZ so that they could pay the ATO? No.

    Good question and important (topical) issue for SME’s.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110872
    kathiemt
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    Thanks James, you are the very first person I’ve heard speak about this but it is something I had been wondering. Perhaps it’s something I should raise with anyone who decides to leave my services to employ someone from an offshore country :). At least they should be made aware of it.

    Do you know if there’s any official articles written about this anywhere? I did try to do a search on it and it might be a worthy article to put in my next newsletter and perhaps even on a blog.

    #1110873
    James Millar
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    Hi Kathie

    Many of our international tax laws are quite complex and traditionally have only been relevant to larger business (historically small businesses traded mostly within Australia and for various reasons that has obviously changed).

    These larger businesses had big tax issues and big budgets and it was only the top end of the advisory market that serviced them (starting at $600ph for an international tax partner). Seeing this opportunity, a few years ago we decided to increase our capabilities in this area and can now provide advice on a more cost effective basis to SME’s (for some items we still leverage off our international tax lawyers). Very few second tier accounting firms (or below) advise in this space – thats why you don’t hear much about it when speaking with advisors.

    The ATO website has some material but the biggest challenge (from experience) is identifying what exactly has been provided and whether some or all is considered a royalty within the tax law. Like most tax law – there is no simple answer.

    Anyway I think at least raising the issue in your blog / newsletter is a good step in the right direction in protecting your clients / subscribers.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110874
    kathiemt
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    Ok, thanks James, that is good to know. May I quote you, or would you prefer I reworded it in my own writing – the original information you gave here I mean. It would be good to raise this information. I had often wondered about businesses taking their needs offshore to supposedly cheaper services (which applies a lot in my industry). I felt that surely there must be something here when they start ’employing’ people overseas rather than engaging someone here for shorter hours at a higher rate.

    #1110875
    James Millar
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    Yes by all means quote these comments but take care when rewording. I think raising this issue with some general points is the way to go.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110876
    Divert To Mobile
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    Thanks James, good to know the ATO has all bases covered.
    Is it safe to guess that similar laws apply for imported labour?

    Steve

    #1110877
    James Millar
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    Again it depends on whether they are an employee or contractor. Employees need an Australian TFN otherwise withhold 46.5% (doesn’t matter where they are). If they’re a contractor and they come to Australia and provide services in Australia then they are likely carrying on an enterprise here. Therefore they need an ABN – othewise ABN witholding applies at 46.5%.

    The tax law basically tries to place the burden of tax collection on the business payer that is based here. So as a business you should always check ALL withholding obligations before you hand the money over to the payee – getting it back can be very hard (and the ATO hold the payer accountable not the payee).

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110878
    kathiemt
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    More on this James, been thinking over night. What does RWT mean? I can’t find that on the ATO website. I’ve been trying to do more research on this. I have come across this which outlines an obligation on an Australian employer if the employee is non-Australian resident but most other information I’ve found relates to an Australian working overseas. And of course my question was more about engaging the services of someone who lives overseas and isn’t an Australian.

    I’ve just re-read your post and I think it’s Royalty Withholding Tax, but again, what does this actually mean?

    #1110879
    James Millar
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    Yes RWT is royalty withholding tax and does not apply to employees (which is why it is not in the pitcher partners doc).

    What’s most interesting in that document is where they say that PAYG withholding doesn’t apply to payments by an Australian employer to a non Australian resident employee for services performed outside of Australia. I’m not sure on the accuracy of that because the document was right around the time the law changed for foreign employees and their tax treatment.

    If in doubt check this because as I said – the withholding obligation is on the employer and you don’t want to get it wrong.

    If its current and not contingent on the foreign country the employee is in (tax treaties differ) then it does give the prospect of hiring cheap foreign labour with very little obligation on the Australian employer. Is that good policy? Probably not.

    Indian call centers come to mind? (unless they are contractors only in which need to review RWT)

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110880
    kathiemt
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    This is all completely out of my league and I don’t have a lot of understanding in that dept. So, where would I find this information, or are you saying this is something that needs to be discussed with an Accountant who has that knowledge?

    I’m not engaging employees from overseas, although I do have overseas members of my network and they pay me to belong to the network. This, of course, is all entered into my accounting.

    But I see and hear frequently people who are promoting hiring cheap foreign labour, as you put it, and it is something I’ve been wondering about, with respect to how that affects their business and tax. Basically, is there, or is there not, an obligation? You’re saying it depends on the tax treaty for whatever country the employed individual is in?

    As I work in an industry where this is happening more frequently I get occasional questions asked and I would like to be able to point them in the right direction at least.

    #1110881
    James Millar
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    Yes I suggest that you encourage anyone considering this to get professional advice specific to their circumstances. Every case is different (the details of the contract, employee versus contractor, where are the services performed etc). If in doubt pay for some good advice. At least then you are insured (by the advisers PI) for any adverse outcomes with the ATO.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1110882
    AgentMail
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    Would using a service such as Odesk, where the invoice/billing comes from Odesk as an overseas company mitigate this neccessity, as the contractor relationship is between Odesk and the contractor?

    #1110883
    kathiemt
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    AgentMail, post: 123755 wrote:
    Would using a service such as Odesk, where the invoice/billing comes from Odesk as an overseas company mitigate this neccessity, as the contractor relationship is between Odesk and the contractor?

    I don’t know. Again, something you would need to check. However, there are agencies out there where you can engage one of their employees, so you’re going through an agency. Just like using an agency here. I don’t know what the obligations are. At Odesk, my understanding is that everyone there is self-employed, much like guru.com or similar.

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