Key points
- Could your employment contracts now unlock treaty relief?
- More short-term assignees may qualify, but key conditions still apply.
- Clear employment and secondment agreements could make the difference.
- Now is the time to revisit assignment structures, cost recharges and payroll.
- New opportunities are emerging, but risks remain while the guidance is in draft.
A draft update from the Australian Taxation Office (ATO) could change the tax treatment of short-term inbound assignments, creating new opportunities for treaty relief while placing greater importance on well-drafted employment arrangements.
For more than a decade, many employees on foreign payrolls have been unable to access treaty relief, even when they spent fewer than 183 days in Australia. The main obstacle was not their length of stay, but the ATO’s broad “economic employer” approach. This often treated the Australian host entity as the employer in substance, triggering Australian tax, payroll withholding and added compliance risk.
Draft TR 2013/1DC signals a change in direction. The ATO proposes moving away from a substance-based test and towards an approach centred on the employment contract and Australian law. For some mobility programs, this could make previously unavailable treaty relief possible, reduce unnecessary payroll costs and influence how short-term roles are structured.
The proposed approach draws on recent High Court decisions and the ATO’s employment guidance in TR 2023/4. It focuses more closely on the parties’ legal rights and obligations, with important consequences for planning, risk assessment and mobility program design.
From substance to contract: why the ATO has changed course
When TR 2013/1 was issued in 2013, it adopted a substance-over-form interpretation of Article 15(2) of Australia’s tax treaties. The employer was viewed as the business receiving the services through an employment-like relationship. This allowed the ATO to look beyond formal agreements and treat an Australian host as the employer when control, integration and economic benefit sat in Australia.
As a result, access to the 183-day short-term visit exemption was often restricted. An employee could remain on a foreign payroll and stay within the treaty day limit, yet still be denied relief because the Australian host was considered the employer in substance.
Draft TR 2013/1DC steps back from this position. It aligns treaty interpretation with current Australian employment law, which gives greater weight to a comprehensive written contract unless the arrangement is a sham or the agreement has been varied. This contract-focused approach already appears in TR 2023/4 and is now being extended to treaty analysis.
The new test: start with the legal employer
Under the draft ruling, the ATO would generally identify the employer for Article 15(2) by applying the ordinary Australian law meaning of “employee” and “employer”. The formal employment contract would be the starting point.
Day-to-day supervision, integration into the host business and practical working arrangements would not, on their own, be enough to replace the contractual employer.
The treaty’s purpose still matters. Relief may remain unavailable if remuneration is paid by, or borne by, an Australian permanent establishment. However, the ATO considers that the domestic law meaning of employer will usually support the treaty’s purpose, except in unusual or abusive arrangements.
What this means for inbound assignees
The proposed change may extend treaty protection to more inbound employees who remain genuinely employed by a non-resident entity.
Consider an employee sent to Australia for four months to support a local project. Under the previous approach, their integration into the Australian business and the benefit received by the local entity could have been enough to deny relief, even if payroll, employment rights and termination authority remained offshore.
Under the draft ruling, the same arrangement may qualify for the short-term visit exemption if the foreign employer is genuine and the remuneration is not borne by an Australian permanent establishment.
Mobility teams may therefore need to revisit how they assess risk across their short-term inbound populations.
Australia in the global mobility landscape
Draft TR 2013/1DC could also change how businesses govern inbound assignments to Australia. The ATO has historically focused on factors such as control, integration and economic benefit. The proposed approach gives greater weight to the formal employment relationship.
This may reduce dependence on subjective reviews of how an assignment operated after the event. In turn, upfront program design, clear documentation and consistent agreements across jurisdictions become even more important.
Anti-abuse rules and areas of uncertainty
The ATO has not removed anti-avoidance safeguards. Relief may still be denied where an arrangement is artificial, contrived or abusive and the contract does not reflect a genuine employment relationship.
However significant issues remain, particularly around cost recharges, permanent establishment exposure and payroll compliance. These risks are likely to be more critical for frequent or high-volume inbound programs.
What employers and mobility teams should do now
While the draft ruling may make treaty relief available for more short-term assignments, businesses will still need strong and consistent mobility governance.
Key actions include:
- Reassessing short‑term inbound assignments previously treated as high‑risk under the economic employer model, particularly where the formal employment relationship is clearly offshore.
- Review secondment, on-hire and services agreements so the legal employer is unmistakeable, and the documentation is aligned with how the arrangement operates in practice.
- Examine cost recharges and permanent establishment exposure. Treaty relief can still be denied when remuneration is borne by an Australian permanent establishment.
- Carefully considering withholding and payroll positions. Where treaty relief applies, PAYG withholding and related employer obligations may not arise, though a conservative interim approach may be appropriate until the ruling is finalised.
- Engaging early with advisers to document positions and, where appropriate, test them through private rulings or internal risk reviews.
A narrower definition with wider opportunities
If finalised, draft TR 2013/1DC would replace the broad economic employer concept with a more focused, contract-based definition. This could improve access to treaty relief for genuine short-term inbound assignees.
For mobility teams that have traditionally viewed Australia as too difficult for short-term inbound work, now is the time to review existing policies and assignment structures. The real barrier may no longer be the tax rules, but whether internal frameworks are ready to support the opportunity.
Is your organisation ready to reassess its position? Our specialist global mobility and tax advisors can review your inbound arrangements. We can identify opportunities for treaty relief and help manage payroll and compliance risks. Contact us to discuss what the proposed changes could mean for your organisation.
