When Overseas Workers Are Australian Employees

The Fair Work Commission has determined that a Philippines based “independent contractor” was an employee unfairly dismissed by her Australian employer.

Like us, you are probably curious how a foreign national living in the Philippines, who had an ‘independent contractors’ agreement with an Australian company, could be classified as an Australian employee by the Fair Work Commission?

The recent case of Ms Joanna Pascua v Doessel Group Pty Ltd highlights just some of the issues Australian businesses face when working with overseas contractors and staff.

When it came to the clauses excluding matters such as the payment of income tax, workers compensation, annual and personal leave relied on by the legal firm as confirmation of an independent contractor arrangement, the FWC referred to the Deliveroo Australia Pty Ltd v Diego Franco case and others. That is, the FWC considers, “the statements in the contract about meeting the obligations consequent upon the labelling of the arrangement as one of independent contractor to have little weight in determining the true nature of the relationship.”

The new definition of employee and employer

In August 2024, a new definition of what is an employee and employer came into effect in the Fair Work Act. This new definition extends the High Court’s decision in CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek to rely on the nature of the contract between the parties, not just what the contract says. The intent of the legislative change appears to be to ensure that clever drafting of a contract alone will not be sufficient to define an independent contractor arrangement.

The Fair Work Act now requires that the true relationship between the parties is, “determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.” The totality of the relationship needs to be considered including how the contract is performed in practice.

What does this decision mean for employers?

The FWC’s decision in Ms Joanna Pascua v Doessel Group Pty Ltd highlights how cautious employers should be about the nature of employment relationships. Just because you label an arrangement as that of an independent contractor, does not mean it is. And if you get it wrong, beyond the industrial relations impact, you might be liable for the tax, payroll tax and workers compensation payments that should have been made.

What makes this decision unusual is how an international employment arrangement can be drawn into the national workplace system. Regardless of the geographic location of an employee, if your business is an Australian national system employer (bound by the Fair Work Act), and the individual is deemed to be an employee, the same rights and obligations may apply to that employee as to other employees located in Australia.

While not addressed in this case, the FWC also referred to the minimum wage for a paralegal performing work such as that undertaken by Ms Pascua. While not applicable to this case, from  1 January 2025, wage theft will become a criminal offence – where an employer is required to pay an amount to an employee but intentionally underpays.  For international employees where rates might be significantly different to Australian expectations, it is more important than ever to ensure you have characterised the employment relationship correctly.

Tax obligations and international workers

We’re often asked about the implications of working with overseas, non-resident workers who are working for a resident Australian company.

Let’s say you want to engage the services of a non-resident individual.

Do We Need Insurance?

Insurance is often overlooked or considered unnecessary by many Australians, yet it plays a crucial role in safeguarding financial futures.

Most Australians are underinsured, due to factors such as the complexity of insurance products, the perception that insurance is too expensive, or the belief that one’s assets or income are sufficient to cover potential losses, leaving themselves and their loved ones vulnerable to financial distress in the event of unexpected events such as illness, injury, or death. With the right insurance in place, individuals can ensure financial security and peace of mind, particularly for those with dependents or significant debts.

Types of Personal Risk Insurance

When thinking about insurance, it is important to understand the different types of personal risk insurance available. Each type serves a specific purpose and covers different risks, helping individuals manage various uncertainties in life.

  1. Life Insurance

Life insurance offers a lump sum payment to cover expenses like funeral costs, debts, and ongoing financial needs in the event of death. This coverage ensures that families are financially supported after the loss of a loved one, especially for those with mortgages, children, or other responsibilities.

  1. Total and Permanent Disability (TPD) Insurance

TPD insurance provides financial protection if one becomes totally and permanently disabled, preventing them from working. This coverage helps maintain living standards by covering medical, rehabilitation, and everyday expenses, and is valuable for those with high-risk jobs or substantial financial obligations.

  1. Income Protection (IP) Insurance

IP insurance replaces a portion of regular income—typically up to 75%—if the policyholder is temporarily unable to work due to illness or injury. It is crucial for anyone with significant financial responsibilities, ensuring that bills and loans are paid while they recover.

  1. Trauma Insurance

Trauma insurance, sometimes referred to as critical illness insurance, is the most expensive form of personal risk insurance. It is designed to provide a lump sum payment if diagnosed with a serious illness such as cancer, heart attack, or stroke. The purpose of trauma insurance is to help cover the costs of treatment, rehabilitation, and recovery, as well as other financial burdens that may arise, such as time off work. Trauma insurance can be an essential part of a comprehensive risk management plan, especially for individuals with a family history of serious medical conditions.

When Should You Consider Insurance?

Understanding when to consider insurance is key to making informed decisions about coverage. Several life scenarios can signal the need for personal risk insurance.

  1. Debt

Insurance is essential for those with significant debt, such as a mortgage or personal loans. Life insurance ensures that loved ones are not left with overwhelming financial obligations, while IP and trauma insurance will help cover loan repayments if the policyholder is unable to work temporarily.

  1. Financial Dependents

One of the most important reasons to consider insurance is having financial dependents—individuals who rely on a person’s income for their day-to-day living expenses. This could include a spouse, children, or aging parents. In such cases, life insurance is crucial as it provides financial security to loved ones after the policyholder’s passing.

  1. One Priority Income Earner

In many households, there is a priority income earner, meaning one individual contributes significantly more to the household’s income than others. When this is the case, insurance becomes a top priority. If the primary income earner becomes unable to work due to illness, injury, or death, the family’s financial stability can be severely impacted. Life insurance provides support for dependents in the event of death, while Income Protection (IP) and Total and Permanent Disability (TPD) insurance protect the income stream if the main earner can no longer work. Trauma insurance also offers financial support during critical illnesses, helping the family manage expenses during challenging times.

Rising Premiums: Exploring Alternatives to Traditional Insurance

As individuals age or their health changes, insurance premiums can rise, making it more challenging to maintain coverage. For many, these rising premiums prompt a reconsideration of insurance options, introducing the concept of self-insuring as an alternative.

Self-insuring involves using personal assets to cover potential risks rather than relying on insurance. For instance, individuals with a strong asset base—such as savings, investments, or property—may choose to self-insure by using these resources to cover medical expenses, debts, or living costs in the event of illness, injury, or death.

Before deciding to self-insure, it is important to carefully assess the financial situation and determine whether existing assets are sufficient to cover the potential costs of unforeseen events. Consulting with a financial adviser can help in weighing the pros and cons of continuing with insurance versus opting to self-insure.

Mature-Age Children: Is It Time to Reassess Your Insurance Needs?

As children grow older and become financially independent, their parents’ insurance needs may change. If mature-age children no longer rely on parental income for support, the need for life insurance may decrease. This situation presents an opportunity to reassess the overall financial situation, consider the asset base, and explore the possibility of self-insuring. Consulting with a financial adviser can assist in determining whether it is time to reduce insurance coverage or transition to relying on personal assets to cover future risks.

Considering insurance is essential at various stages of life, particularly for those with financial dependents, significant debts, or a priority income earner in the household. By understanding the different types of personal risk insurance available—such as life, Total and Permanent Disability (TPD), Income Protection (IP), and trauma insurance—individuals can better protect themselves and their loved ones from financial hardship in the event of illness, injury, or death. As premiums rise and family situations change, self-insuring may become a viable alternative to traditional insurance. A financial adviser can provide guidance through these decisions, helping to ensure a secure financial future and protection for loved ones.

 

Key Dates – December 2024

1 December

Pay income tax for taxable large and medium taxpayers, companies and super funds. Lodgement of return is due 31 January 2025.

Pay income tax for the taxable head company of a consolidated group with a member deemed to be a large or medium taxpayer in the latest year lodged. Lodgement of return is due 31 January 2025.

Pay income tax for companies and super funds when lodgement of the tax return was due 31 October 2024.

21 December

Lodge and pay November 2024 monthly business activity statement.

Key Dates – November 2024

21 November

Lodge and pay October 2024 monthly business activity statement.

25 November

Lodge and pay quarter 1, 2024–25 activity statement if you lodge electronically.

28 November

Lodge and pay quarter 1, 2024–25 Superannuation guarantee charge statement if the employer did not pay enough contributions on time.

Note: Employers lodging a Superannuation guarantee charge statement can choose to offset contributions they paid late to a fund against their super guarantee charge for the quarter. They still have to pay the remaining super guarantee charge.

Payday Super – The Details

‘Payday super’ will overhaul the way in which superannuation guarantee is administered. We look at the first details and the impending obligations on employers.

From 1 July 2026, employers will be obligated to pay superannuation guarantee (SG) on behalf of their employees on the same day as salary and wages instead of the current quarterly payment sequence.

The rationale is that speeding up the payment sequence for SG will not only help reduce the estimated $3.4 billion gap between what is owed to employees and what has been paid, but will also improve outcomes for employees – the Government estimates that a 25‑year‑old median income earner currently receiving super quarterly and wages fortnightly could be around 1.5% better off at retirement.

Announced in the 2023-24 Federal Budget, payday super is not yet law. However, given the structural changes required to administer the new law, Treasury has released a fact sheet to help employers better understand the implications of the impending change.

How will payday super work?

Under payday super, the due date for SG payments will be seven days from when an ordinary times earning* payment is made. That is, employers have seven days from an employee’s payday for their SG to be received by their super fund. The only exceptions are for new employees whose due date will be after their first two weeks of employment, and for small and irregular payments that occur outside the employee’s ordinary pay cycle.

Over the last few years, employers have moved to single touch payroll (STP) reporting for employee salary and wages. It is expected that payday super will fold into the existing electronic systems and some changes will be made to STP to collect ordinary times earning data.

The impact for some employers however will not be the compliance cost of administering the regular SG payments, but the cashflow. Employers will not be holding what will be 12% of their payroll until 28 days after the end of the quarter, but instead paying this amount out on the employee’s payday. The upside is that where an employer has either fallen behind or not paying SG, particularly when the business is insolvent, the damage is contained.

What happens if SG is paid late?

The penalties for underpaying or not paying SG are deliberately punitive and this approach will continue under payday super.

Currently, a super guarantee charge (SGC) applies to late SG payments – comprised of the employee’s superannuation guarantee shortfall amount, interest of 10% per annum from the start of the quarter the SG payment was due, and an administration fee of $20 for each employee with a shortfall per quarter. And, unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied.

Under payday super, employees are fully compensated for delays in receiving SG amounts and larger penalties apply for employers that repeatedly fail to comply with their obligations. If you make a payment late, the SGC is made up of:

Outstanding SG shortfall  Calculated based on OTE, rather than total salaries and wages as it is currently.
Notional earnings  Daily interest on the shortfall amount from the day after the due date, calculated at the general interest charge rate on a compounding basis.
Administrative uplift  An additional charge levied to reflect the cost of enforcement and calculated as an uplift of the SG shortfall component of up to 60%, subject to reduction where employers voluntarily disclose their failure to comply.
General interest charge Interest will accrue on any outstanding SG shortfall and notional earnings amounts, as well as any outstanding administrative uplift penalty.
SG charge penalty  Additional penalties of up to 50% of the outstanding unpaid SG charge, that apply where amounts are not paid in full within 28 days of the notice of assessment.

As you can see, if the proposed SGC becomes law, late SG payments can spiral out of control quickly. This will be a particular issue for employers that pay employees less than their entitlements over time, or have misclassified employees as contractors and have an outstanding SG obligation.

But, unlike the current SGC, the new SGC will be tax deductible (excluding penalties and interest that accrue if the SG charge amount is not paid within 28 days).

Payday super is not yet law. We will keep you up to date as change occurs and work with you to get it right once the details have been confirmed.

*Ordinary time earnings are the gross amount your employees earn for their ordinary hours of work including over-award payments, commissions, shift loading, annual leave loading and some allowances and bonuses.

Accessing Super From Age 60 to 65

From 1 July 2024, the rules for accessing superannuation became somewhat simplified: the preservation age when you can begin to access your benefits is now effectively age 60. However, until you reach age 65, there are still potential restrictions on how you can access your super. You’ll need to “retire” before you can make lump sum withdrawals from your super account or move it into the favourable “retirement phase” when investment earnings within the fund become tax-free. If you’re aged between 60 and 65 and wish to access some of your super, it’s a good time to re-examine the rules.

For anyone born after 30 June 1964, preservation age is age 60.If you are between 60 and 65 years old but haven’t yet retired, you can commence a transition to retirement income stream (TRIS). This allows you to receive a regular income of between 4% and 10% of your pension account balance each year. If you want to access more of your super, or withdraw it as a lump sum, you’ll need to satisfy a further condition of release. This includes reaching age 65, or “retirement”.

Meeting these conditions is also relevant for tax purposes. TRIS payments to a person aged 60 or over are generally tax-free – regardless of whether they are retired or not – but the TRIS itself does not move into the “retirement phase” until a further condition such as retirement (or reaching age 65) is met.

To satisfy the retirement condition, an arrangement under which you were gainfully employed must have come to an end. If you’d already reached age 60 when that position ended, there are no further requirements, and your future work intentions aren’t relevant.

If you hadn’t yet reached aged 60 when the position ended, the trustee of your fund must be reasonably satisfied that you intend never to again become gainfully employed, either on a full-time or a part-time basis. “Part-time” means working for at least 10 hours per week, so you could intend to work for less than 10 hours per week and still meet the “retirement” condition.

Any withdrawal strategy should be carefully planned to ensure you understand the implications of accessing your super. There are many factors to consider, such as the ongoing requirement to withdraw minimum pension amounts each year if you start a pension, implications for your transfer balance account, and interactions with the Age Pension referring to older advice or information (e.g. online) that is based on the TSB thresholds for 2023–2024.

Deducting Gifts & Donations: Getting It Right At Tax Time

Have you made charitable gifts or donations in the past financial year? The good news is these items are often deductible, giving many Australians a welcome boost to their tax refund. Make sure you know the rules this tax time.

When gathering your donation receipts, it’s important to understand what can and can’t be claimed as a deduction. The first general rule is that a donation of money of $2 or more may be deducted if the donation was made to a “deductible gift recipient” (DGR). A DGR is an entity that has registered with the ATO as being eligible to receive deductible gifts and donations.

Some charities may not have DGR status, so check if you’re unsure. Many online crowdfunding platforms are also not DGRs, which means you typically won’t be able to claim your donation towards fundraising for individual causes, such as someone’s funeral or medical costs.

The second general rule is that a donation is only deductible if you didn’t receive a benefit in return. This means you can’t make a claim if you received things like raffle tickets or items that have an advertised price, such as toys and food items. However, you may receive a “token” promotional item such as a sticker or lapel pin and still qualify for a deduction. Note that donations to a school’s building fund won’t be deductible if you received benefits such as reduced school fees or a certain placement on a waiting list in return for the donation.

Small cash donations totalling up to $10 don’t require a receipt. However, beyond that you must be able to provide evidence of your claim. You aren’t required to keep an original paper receipt, provided you keep an electronic copy that is a true and clear reproduction. If you don’t have a receipt, you may be able to substantiate the claim with other documentation such as a bank statement evidencing the donation.

If you make donations through a “workplace giving program” operated by your employer, you can simply claim the amount of donations shown in your income statement or payment summary. You can claim this deduction in your tax return regardless of whether your employer has reduced the tax withheld each pay period. In both cases, your gross salary or wages and deductible donations for the year will be the same, but any difference in the tax withheld during the year will factor into your eventual tax refund. Workplace giving programs aren’t the same as salary-sacrifice, as they don’t lower your gross salary or wages.

Property & ‘Lifestyle’ Assets In The Spotlight

Own an investment property or an expensive lifestyle asset like a boat or aircraft? The ATO are looking closely at these assets to see if what has been declared in tax returns matches up.

The Australian Taxation Office (ATO) has initiated two data matching programs impacting investment property owners and those lucky enough to hold expensive lifestyle assets.

Investment property

What investment property owners declare and claim in their personal income tax returns is a constant focus for the ATO. Coming off the back of data matching programs reviewing residential investment property loan data, and landlord insurance, the ATO have initiated a new program capturing data from property management software from the 2018-19 financial year through to 2025-26. Data collected will include:

Property owner identification details such as names, addresses, phone numbers, dates of birth, email addresses, business name and ABNs, if applicable;

Details of the property itself – property address, date property first available for rent, property manager name and contact details, property manager ABN, property manager licence number, property owner or landlord bank details; and

Property transaction details – period start and end dates, transaction type, description and amounts, ingoings and outgoings, and rental property account balances.

While the ATO commit to specific data matching campaigns, since 1 July 2016, they have also collected data from state and territory governments who are required to report transfers of real property to the ATO each quarter.

This latest data matching program ramps up the ATO’s focus on landlords, specifically targeting those who fail to lodge rental property schedules when required, omit or incorrectly report rental property income and deductions, and who omit or incorrectly report capital gains tax (CGT) details.

Lifestyle assets

Data from insurance providers is being used to identify and cross reference the ownership of expensive lifestyle assets. Included in the mix are:

Caravans and motorhomes valued at $65,000 or over;

Motor vehicles including cars & trucks and motorcycles valued at $65,000 or over;

Thoroughbred horses valued at $65,000 or over;

Fine art valued at $100,000 per item or over;

Marine vessels valued at $100,000 or over; and

Aircraft valued at $150,000 or over.

The data collected is substantial including the personal details of the policy holder, the policy details including purchase price and identification details, and primary use, among other factors.

The ATO is looking for those accumulating or improving assets and not reporting these in their income tax return, disposing of assets and not declaring the income and/or capital gains, incorrectly claiming GST credits, and importantly, omitted or incorrect fringe benefits tax (FBT) reporting where the assets are held by a business but used personally.

VACANT RESIDENTIAL LAND TAX

Vacant residential land tax (VRLT), introduced in Victoria in 2017 for vacant properties in the middle and inner suburbs of Melbourne, has now been expanded to cover the whole State.  This means that any residential property that is not used and occupied for more than 6 months during calendar year 2024 could be subject to this tax.

What follows is a general overview of the key points and exemptions.  There are other exemptions and residential land factors that can be relevant beyond what is covered here.  This includes deceased estates, uninhabitable land, re-zoned land and land that changes hands during the year.

What is the tax?

The tax is in addition to Land Tax and is levied as:

  • 1% of Capital Improved Value (CIV) for the first year vacant; then

  • 2% of CIV for a second consecutive year; and

  • 3% of CIV for a third consecutive year

Example

Residential property with land worth $1,000,000 and CIV of $1,250,000 is vacant for the year.  The land taxes (excluding absentee surcharges) for the first year are:

 Land Tax (2024 rates) VRLT (first year) Total

Individual or company land owner   $4,650 $12,500 $17,150

Trust land owner   $8,163 $12,500 $20,663

When is a property “vacant”?

A property is considered vacant if it has not been used and occupied for at least 6 months during the year.  The property needs to be occupied by the owner or the owner’s permitted occupier as their principal residence, or a person under a lease or short-term letting arrangement.

The use and occupation does not need to be continuous.  But it is based on actual use and this should not be confused with the concept of a property being ‘available for rent’ as being sufficient to claim income tax deductions.

For example, a property that is rented out using a platform like Airbnb on and off for over six months during the calendar year would not be vacant and would be exempt from VRLT.  In contrast, a property that is advertised on Airbnb and with an agent for the whole year, but is only used by tenants for 15 weeks of the year would be considered vacant as actual use is under 6 months.  In the latter scenario, a landowner would have to rely on a holiday house exemption if available to avoid imposition of VRLT.

What are the main exemptions?

There are several exemptions from VRLT:

  • If the property is exempt from Land Tax it is exempt from VRLT

  • Use as a place of work or business – occupied at least 140 days a year where the owner also has another principal residence

  • Holiday home – A landowner can have one holiday home whilst also owning and occupying a principal residence and must use it as a holiday home for at least 28 days during the year

A closer look at the holiday home exemption is here.

Do trusts and companies qualify for exemptions?

It depends on when the property was acquired and who is using it.

A trust or company can apply the holiday home or business use exemptions, but only if the property is used by certain specified people and the entity owned the land in question on and before 28 November 2023.  Therefore, for a discretionary trust, the people named in the trust deed and in what role/capacity will be relevant.

Given the requirement to have held the asset on 28 November 2023, VRLT is now an important consideration when looking at ownership structures for residential properties that will not be consistently rented or leased to tenants.

What is the landowner required to do?

If residential property is vacant during the year, or vacant but an exemption applies, then it is the landowner’s obligation to notify the State Revenue Office by 15th January of this status.  Notification will be made through an online portal, which for January 2025 is expected to be open in December 2024.

If the property is not vacant (for instance if it has been leased all year), then there is no need to make a notification.  Failure to notify could result in penalties.

Please get in touch with our team if you would like to know more about how these tax developments affect you.

DIVORCE, YOU, AND YOUR BUSINESS

Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.

What happens when there is a family company?

For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.

If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO.

For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.

What happens to your superannuation in a divorce?

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.

Can you protect both parties from divorce?

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family.  If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates.  The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.