The Australian Taxation Office (ATO) has recently updated its guidance on the Australian tax implications for individuals that have been displaced in Australia due to the COVID-19 pandemic.1

For individuals who previously resided overseas but who returned to Australia due to COVID-19 and who have remained in Australia during the 2021 tax year and beyond, the circumstances under which they may continue to be regarded as nonresidents for Australian tax purposes are limited. The ATO has clarified that if an individual had the ability to leave Australia and chose to remain, this will be a strong indicator he or she has established Australian tax residence. 


Companies with employees who have been displaced in Australia due to the COVID-19 pandemic for a prolonged period of time should be aware that Australian tax residence may have been triggered. The concessions available for the sourcing of employment income for employees working remotely in Australia due to COVID-19 have also been updated, increasing the likelihood that such income will be treated as having an Australian source for tax purposes. 

A combination of factors has made Australia a desirable remote working destination and many individuals have become displaced in Australia at various points during the COVID-19 pandemic, typically working remotely for their foreign employer.

Following the recently-updated ATO guidance on displaced workers, individuals who continue to remain in Australia are likely to have established Australian tax residency, and will be taxable on a worldwide basis. Likewise, nonresidents with employment income sourced to Australia will also be subject to Australian taxes.

Employers, meanwhile, will be required to comply with Australian employment tax requirements, even in circumstances where the employee continues to work for the benefit of a foreign employer with no Australian corporate presence. 

These requirements include:

  • Single Touch Payroll Reporting
  • Pay-As-You-Go Withholding
  • Fringe Benefits Tax
  • Employer Superannuation Contributions
  • State Payroll Tax
  • Workers Compensation. 

Key Details

As discussed in GMS Flash Alert 2020-487 (9 December 2020), under previously-released ATO guidance,  certain employees displaced to Australia as a result of the pandemic were not considered tax resident of Australia, and their employment income could be regarded as “foreign sourced.”

This meant that foreign employers were not required to comply with some of the usual Australian employer reporting requirements outlined above. 

Updated Tax Residency Guidance

Under the updated guidance released in mid-August, unless there are specific circumstances preventing taxpayers from leaving Australia and returning to their usual overseas home, they will likely have become Australian tax residents. 

The following are factors the ATO has indicated would be considered in determining whether or not a taxpayer has been able to leave Australia:

1. Government restrictions preventing them from leaving Australia or entering their usual country of residence. 

2. A lack of commercial flights available to their home country. 

Proof of a declined travel exemption to leave Australia or to enter a taxpayer’s home country, for example, may be important to substantiate an inability to leave. Similarly, proof of flight cancellations, or evidence that flights into a certain country simply are not available may help demonstrate an inability to leave. 

The ATO has not indicated whether consideration would be given to the heightened costs of international flights during the COVID-19 pandemic. Such costs may be prohibitively expensive for an individual, thereby preventing him or her from leaving Australia without suffering serious economic hardship. 

Updated Sourcing of Income Guidance

In addition to tax residency, the ATO has stated that the source of employment income for displaced employees physically working in Australia for a foreign employer should be carefully examined, as in most instances, the income will be considered Australian-sourced.

The ATO has indicated that it would consider salary to have an Australian source if:

1.     the employee has chosen to stay in Australia, despite being able to leave, or

2.     the employee has agreed with the employer that Australia can be his or her usual place of work until the employee chooses to travel again.

In addition, the ATO has noted the numerous Australian double taxation treaties that may ”deem” employment income to be Australian-sourced if services are being performed in Australia, regardless of any potential Australian domestic tax concessions available.

Australian-sourced employment income will be taxable to individuals regardless of their Australian tax residency.

In addition, for those employees who have triggered residency but remain subject to foreign taxes on employment income earned remotely, such income being treated as Australian-sourced may further complicate their tax affairs and they may need to look to concessions available to them from the foreign country, or under a double taxation treaty, to mitigate potential double tax. 

Other Important Things to Consider

Medicare Levy and Medicare Levy Surcharge

Employees who are Australian residents will be subject to the 2% Medicare Levy.

An employee whose income is above a certain threshold and who does not hold adequate Australian private health insurance may also be subject to the Medicare Levy Surcharge. Most foreign health insurance plans are not sufficient to afford exemption from the Medicare Levy Surcharge.

International Business Trips to Australia

Looking beyond the pandemic, as borders re-open and international travel resumes, the nature and purposes of business travel by employees are expected to change.

The ATO has also recently released its detailed “Practical Compliance Guideline & Taxation Ruling” related to business travellers and Fringe Benefit Tax, namely the deductibility of housing and food costs.2 (For related coverage, see GMS Flash Alert 2021-091, 23 March 2021.) 

The ATO advises that it is satisfied an employee is travelling for work and will not apply compliance resources to determine if food or housing fringe benefits relate to expenses for living at a location, when the employee is working at the same location for no more than 21 continuous calendar days at a time and no more than 90 days in total at that work location during a fringe benefits tax year. 


The ATO guidelines note that a “small amount of additional time” may be accepted by the ATO in addition to the 21/90 days, which stretch to allow for hotel quarantine time upon arrival in Australia, or circumstances where an employee becomes unexpectedly stuck in a business travel location due to a border closure. This will be a welcome clarification for employers who may be planning what future business travel may look like moving out of the COVID-19 pandemic. 

It is important to note however that any de minimus day rule referenced by the ATO in the guidelines and ruling is limited to the application of the fringe benefits tax rules for business travellers, and may not exempt an employee or his

or her employer from Australian income tax and related employment tax and superannuation obligations on business travel to Australia.

KPMG will continue to have an open dialogue with the ATO and share further updates as guidance is released.

Now is the time for individuals and their employers to take stock of employees who continue to stay in Australia as a result of the COVID-19 pandemic, to help ensure the tax and reporting obligations for all parties are understood. 


1  See most recent ATO guidance “Residency and source of income.”

2  ATO Practical Compliance Guideline PCG 2021/3 and Taxation Ruling TR 2021/4.



Dan Hodgson

(Perth, Western Australia)

Partner – People Services

Mobile: +61 416 017

Mardi Heinrich

(Perth, Western Australia)

Partner – People Services

Mobile: +61 410 602 993

Ablean Saoud

(Sydney, New South Wales)

Partner – People Services

Mobile: +61 421 052 596

Hayley Lock 

(Brisbane, Queensland )

Partner – People Services

Mobile: +61 477 764 638

Jackie Shelton

(Sydney, New South Wales)

Partner – People Services

Mobile: +61 412 291 846 

Belinda Wright 

(Sydney, New South Wales )

Partner – People Services

Tel.: +61 2 9335 7031

Special Contributors: Terry Hoban, Kelly Lewis, and Nick Talbert

The information contained in this newsletter was submitted by the KPMG International member firm in Australia.


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GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.