Hong Kong has extended its travel ban on incoming flights from eight countries including Australia until 21 April 2022.1 The travel ban has been in place since 8 January 2022. This creates concerns about displaced workers and issues around residency, income sourcing, and permanent establishment.
The Australian Taxation Office (ATO) has provided guidance on the Australian tax implications for individuals that have been displaced in Australia due to the COVID-19 pandemic.
Many Hong Kong-based employees who may have come to Australia to visit extended family and friends over the Christmas and New Year period have found themselves unable to return. Some employers are now concerned about tax issues associated with allowing these employees to work remotely in Australia for a temporary period until flights resume.
Employers need to be aware of the circumstances of displaced workers who are in Australia. Regardless of which jurisdiction their employees normally work in, employers need to consider whether any Pay-As-You-Go withholding and payroll reporting obligations exist for employee time spent in Australia.
The Australian Taxation Office (ATO) published COVID-19 guidance in relation to residency and income source remains relevant in these circumstances.2 (For prior coverage, see GMS Flash Alert 2021-229, 3 September 2021.)
The underlying principle is that a nonresident of Australia for tax purposes is only taxable on Australian-sourced income.
It is also important to remember that where employees have triggered Australian tax residence, then, regardless of the source of the employment income, they will be taxable in Australia.
The ATO has not extended its approach to permanent establishment (PE) risk beyond 31 December 2021. Prior to 31 December 2021, the ATO indicated that it would not apply compliance resources to determine whether a PE existed in certain circumstances due to travel restrictions arising from COVID-19.
From 1 January 2022, this approach ceased to apply, and foreign employers will need to consider whether ongoing arrangements give rise to a PE in Australia. This is understandable given that some international flights have resumed. If employees have been in Australia for a significant period of time, foreign employers need to consider more broadly what the employees are doing and whether they are actually endeavoring to depart.
The ATO has updated Taxation Ruling TR 2002/5 with an addendum to formally recognise the ongoing COVID-19 pandemic as an “extraordinary circumstance” where a forced presence of employees in Australia for more than six months may be considered “temporary” for the purposes of satisfying the temporal permanence requirement for foreign entities to have a PE in Australia.3 Accordingly, this should provide foreign employers with some assurance that the Commissioner will continue to consider the impacts of the COVID-19 global pandemic and travel restrictions where relevant when determining whether a PE exists.
Accordingly, this should provide foreign employers with some assurance that the Commissioner will continue to consider the impacts of the COVID-19 global pandemic and travel restrictions where relevant when determining whether a PE exists.
With the changes in work practices globally and on-going developments as governments around the world tackle outbreaks of COVID, employers need to stay in tune with the various circumstances in which employees find themselves working in Australia in order to navigate through the associated employer obligations.
1 See, Government of Honk Kong SAR COVID-19 website.
2 See ATO guidance, “Residency and source of income.”
Sydney, New South Wales & Melbourne, Victoria Mardi Heinrich Partner – Deals, Tax & Legal People Services Mobile: +61 410 602 993 | Perth, Western Australia Dan Hodgson Partner – People Services Mobile: +61 416 017 131 |
Melbourne, Victoria Ursula Lepporoli Partner – People Services Tel.: +61 3 8626 0967 | Brisbane, Queensland Hayley Lock Partner – People Services Mobile: +61 477 764 638 |
Sydney, New South Wales Ablean Saoud Partner – Deals, Tax & Legal People Services Mobile: +61 421 052 596 | Sydney, New South Wales Jackie Shelton Partner – Deals, Tax & Legal People Services Mobile: +61 412 291 846 |
Special Contributors: Priscilla Tang, Belinda Rong
The information contained in this newsletter was submitted by the KPMG International member firm in Australia.
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