Proposed changes to 'Backpacker' tax

Proposed changes to 'Backpacker' tax

Working Holiday Marker Program (Backpacker Visa)

The Australian Government has published proposed changes to the ‘Working Holiday Maker Program’. Generally, this program allows young adults (aged 18 to 30) from eligible partner countries to work in Australia while having an extended holiday. The 'Working Holiday Maker Program' is a cultural exchange programme which aimed at enabling young travellers to have an extended holiday and earn money through short-term employment. However, it should be noted that the primary motive for trip should be to travel throughout Australian, not to work solely.

Classifications and treatment of Working Holiday Makers

Currently, to work legally as a working holiday maker an individual has to obtain an Australian Tax File Number (TFN). These numbers are available to non-residents who have the required working visas. Examples of common valid working visa types are:

  • Working holiday makers (subclass 417)
  • Entertainment (subclass 420)
  • Sport (subclass 421) and
  • Work and holiday makers (subclass 462).

At this stage it is not clear whether the proposed measure will extend to holders of all of these visa types.

Tax Consequences of proposed changes

The measure proposes a change in the personal income tax rates applying to non-residents. Following is a table showing the differences in personal income tax rates for residents and non-residents.

Table 1: Resident and non-resident tax rates 2014–15

Resident tax rates
Non-resident tax rates
Taxable income Tax on this income Taxable income Tax on this income
0 – $18,200 Nil 0 – $80,000 32.5c for each $1
$18,201 – $37,000 19c for each $1 over $18,200    
$37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000    
$80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000 $80,001 – $180,000 $26,000 plus 37c for each $1 over $80,000
$180,001 and over $54,547 plus 45c for each $1 over $180,000 $180,001 and over $63,000 plus 45c for each $1 over $180,000

For example, a non-resident individual earning $40,000 in the current tax year would be liable for $4,547 in personal income tax, leaving an after-tax income of $35,453. Under the proposed arrangements, this individual would be liable for $13,000 in personal income tax, leaving an after tax income of $27,000.

Comparison with departing superannuation payments

The above proposed change is not the only instance where working holiday makers are subject to a higher rate of tax than residents. When temporary residents depart Australia permanently, they may withdraw their accumulated superannuation balance. The tax rate is between 38 and 47 per cent. In similar circumstances, residents withdrawing their superannuation balance when they are below their preservation age (generally between 55 and 60) face a 20 per cent tax rate.

If you employ foreign workers for casual, short term or seasonal employment and would like more information on how this potential change could affect your workforce contact your GMD team member.

Tags: Backpacker Tax

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