How the changes to the backpacker tax rate will affect you.
From the 1st of January 2017 employers who employ, and those who intended to employ, backpackers are required to register with the Australian Taxation Office (ATO) and are subject to withholding a new tax rate of 15 per cent from first dollar earned.
Specifically, this backpacker tax covers individuals with the Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462), which gives them the right to work in Australia.
This change in tax law will mainly affect agriculture, hospitality, construction and domestic services industries, as these industries hire the majority of backpackers in Australia.
So what will this mean for me?
Q: I’m an employer looking to hire backpacker on a 417 or 462 working holiday visa. What income tax rate should I be withholding this financial year?
All salary and wages paid from 1 January 2017 are subject to a 15 per cent rate. You must register to withhold at this rate.
All payments made to employees before 1 January 2017 are not subject to this new tax rate. If you fail to register, you must use the foreign resident withholding rate, which starts at 32.5 per cent for the first $37,000.
All salary and wages paid before 1 January 2017 to all non-resident backpackers are subject to a 32.5 per cent tax rate from the first dollar earned.
If you employ a backpacker who is a resident they will be able to claim the tax-free threshold for wages earned prior to 1 January 2017, with all money earned after this date subject to the new tax rate with no tax-free threshold.
The ATO website states that the chance of someone qualifying as both a backpacker and a resident is low.
Q: As an employer, what are my responsibilities when employing backpackers in Australia?
You must register to withhold tax at the working holiday maker tax rate before making your first payment to them. Also, it is advised that employers check the visa status of their employees before deciding on a tax-withholding rate using the ‘Visa Entitlement Verification Online’ service.
Q: How do I register?
There is a registration tool for employers available on the ATO website here.
Q: What penalties am I subject to if I fail to register?
Employers who fail to register with the ATO open themselves up to administrative penalties.
Those who fail to with hold the correct amount under the PAYG rules are subject to PAYG penalties.
The ATO extended the registration period to the 31st of January 2017. Employers who registered by this date will not be penalised if they used a lower withholding rate from 1 January 2017.
If you registered after the 31 January you will most likely receive an administrative penalty.
Q: The Government discussed raising the age limit for working visas. Is a change in the age limit happening with this tax change?
No, the Government has not raised the current eligible age range of 18 to 30 for working holiday visas (subclass 417 or 462). The Government is still considering raising the age limit for working visas from 30 to 35, there has been no decision made yet but this may be something to be aware of for the future.
Q: Does this new tax arrangement affect superannuation?
Yes, this new tax arrangement for backpackers does affect superannuation but not until 1 July 2017.
If a backpacker leaves the country and claims superannuation from 1 July 2017 onwards, they will lose 65 per cent in tax. This applies to income earned before and after the new rules; if a claim is made from 1 July 2017 the amount deducted from all superannuation will be 65 per cent.
You can find more information on the ATO website, with a ‘new online employer registration form’ and a new tax table to help guide employers.