Australian HR leaders face hidden tax minefield as expats return from the Middle East

Data from the government revealed that as of 31 March, over 10,372 Australians returned home on 103 direct commercial flights from the Middle East since 4 March.

The overlooked implication of this are the complex tax legalities that can leave businesses vulnerable.

Speaking with HRD, Jonathan Dunlea, managing partner at Vialto, said emergency returns are often handled first through an immigration and duty‑of‑care lens. Dunlea argued the bigger sleeper issue is tax – for individuals and organisations alike.

He noted that many employers put international remote working policies in place during COVID-19, covering factors like maximum durations, time zones, cybersecurity and high‑level tax parameters. But those frameworks don’t remove core employer obligations when people are physically back in Australia and working from here.

Two main tax issues are emerging for returnees:

1. Tax residency: whether a returning employee is considered to have resumed Australian tax residency, which would generally expose their worldwide income to Australian tax.

2. Australian‑source income: even if the individual remains a non‑resident, income earned for duties performed while physically in Australia may still be taxable here.

Residency: when “coming home for a while” becomes a tax trigger

The Australian Taxation Office (ATO) has long focused on Middle East–based expats because challenges to non‑resident positions in zero‑tax environments often deliver higher returns than chasing workers in other high‑tax countries.

In the current environment, HR leaders should pay close attention to behavioural and lifestyle cues that indicate an employee is effectively re‑establishing life in Australia. Dunlea pointed to signs such as: moving back into or renting a home locally, working from an Australian office, and enrolling children in Australian schools.

These factors will generally support a conclusion that tax residency has resumed, making the individual fully taxable on their worldwide income.

By contrast, expats who return with a clearly temporary intention – for example, two to three months – and who maintain strong ties to their Middle East base (accommodation, memberships, vehicles, school places) may still be treated as non‑residents.

However, Dunlea stressed that even where non‑residency is preserved, the story doesn’t end there.

Non‑residents can still trigger Australian tax – with no threshold

For many HR leaders, the most surprising risk is that non‑resident employees can still create an Australian tax and payroll footprint simply by performing work while in the country.

If work is carried out in Australia, the income associated with those duties may be treated as Australian‑source and taxable here – regardless of whether the employee remains a non‑resident.

Crucially for employers, there is no de minimis relief for short stays or low amounts of income in these circumstances and the analysis extends beyond base salary to include annual bonuses and employee share schemes, where vesting or performance periods overlap with time spent working from Australia.

The ATO looks at several factors in determining whether income is Australian‑source, with particular weight often placed on where duties are performed, alongside where the employment contract is held and where the individual is paid from.

For example, Dunlea said an Australian on a local Dubai contract, paid in Dubai and in a geographically bound role (such as a country head) who performs that work remotely from Australia for a short period may be less likely to be treated as earning Australian‑source income than someone still on an Australian contract, partly paid from Australia, in a role that could be performed anywhere in the world.

Operational fallout: PAYG, super, FBT and payroll tax

Once income is treated as Australian‑source, HR and payroll teams face a cascade of compliance obligations.

If a returning employee’s income is taxable here, the payer generally must register and withhold Pay As You Go (PAYG) tax, consider Fringe Benefits Tax, and address superannuation, workers’ compensation and state payroll tax exposures

“Someone's got to withhold PAYG, and that obligation sits primarily with the payer of the income,” Dunlea noted.

In many cases, that payer is an entity in the Middle East, which can be required to register for PAYG in Australia and comply with other employer obligations – a daunting prospect for offshore HR and finance teams.

Where there is an Australian affiliate, it may be possible for the local entity to take on reporting and withholding on behalf of the overseas employer, but this brings its own administrative and payroll‑system complexity.

Compounding the challenge, unlike during the pandemic, there are currently no broad, time‑limited concessions being offered for individuals working remotely back in Australia due to the conflict.

Why HR leaders can’t rely on clarity from the law (yet)

One of the biggest frustrations for organisations is that Australia’s residency and source rules are far from straightforward.

Unlike the UK, which has a clear statutory residency test that enables individuals to self‑assess against objective criteria, Australia still relies on a patchwork of legislation, cases and ATO rulings.

There have been consultations on whether to move to a more UK‑style approach, and Dunlea says cross‑border taxpayers would likely welcome that shift, but for now HR and employees are left navigating a nuanced, case‑by‑case framework – without the safety net of special carve‑outs for crisis‑driven relocations.

What HR should do now

For HR leaders, the immediate priority is visibility and structured assessment, rather than ad hoc exceptions.

Dunlea outlines a three‑step approach:

1. Know who is in the country: Employers must ensure they have a complete picture of all staff currently working from Australia – not just those who were previously on Australian payroll. This may require pulling data from multiple systems to capture employees whose original hiring and contracts sit entirely offshore.

2. Understand personal circumstances and intentions: Work with individuals to map how long they expect to remain in Australia and what ties they are maintaining with their Middle East base – from housing to school enrolments – and provide guidance on steps to avoid unintentionally tipping into Australian tax residency.

3. Assess the work and employment structure: Identify what duties are being performed from Australia, where the employment contract is held, and where and how the employee is remunerated. These factors, taken together, will drive whether PAYG and other employer obligations apply – and whether they should sit with the offshore payer or an Australian affiliate.

The Middle East returnee wave is fast becoming a real‑world test of how mature companies' cross‑border workforce governance really is.

Organisations that invested in robust international remote‑work frameworks during COVID-19 are better placed, but even they cannot rely on those policies alone. This latest geopolitical shock is exposing gaps in tracking, tax literacy and collaboration between HR, tax and payroll – particularly where offshore entities are the legal employers.

With no immediate sign of legislative simplification or broad concessions, HR may need to work more closely than ever with in‑house tax teams and external advisors to ensure they are not blindsided by liabilities that could surface years down the line, especially as bonuses and equity awards vest.

For now, Dunlea’s message to HR is to treat each returning expat as a discrete risk assessment – and do not assume that “working from home” in Australia is administratively neutral just because the employment contract sits thousands of kilometres away.