Backpacker tax comes into effect

Backpacker tax comes into effect

Andy Hutt and Rohan Frame outline some considerations for employers regarding the new Backpacker Tax.

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Backpack kept on the table

After much political negotiation, the working holiday makers tax ‘Backpacker Tax’ came into effect on 1 January 2017. Individuals present in Australia on 417 or 462 visas (being working holiday visas for people between 18 and 31 years old) as well as individuals on bridging visas, are subject to the new working holiday maker tax rates.

Such taxpayers will be subject to 15 percent tax on their first $37,000 of taxable income, after which they will be subject to the current resident income tax bands and rates. If, however, the taxpayer has not quoted their Tax File Number (TFN) they will be subject to 47 percent tax on all earnings.

Employer considerations

  • Employers with staff on the above visas need to register with the Australian Taxation Office (ATO) to withhold at the new working holiday maker tax rates.
  • For employers with existing working holiday makers, registration must be made by no later than 31 January 2017. Otherwise, registration with the ATO must be made prior to making your first payment to a working holiday maker.
  • The new tax rates will apply to salary and wages paid from 1 January 2017.
  • Employers who fail to register with the ATO must withhold at the foreign resident rates which start at 32.5 percent tax for the first $37,000 of taxable income.
  • For the year ending 30 June 2017, employers of working holiday makers will need to issue two pay as you go (PAYG) Payment Summaries, one covering 1 July to 31 December 2016, the second covering 1 January to 30 June 2017.
  • Employers must continue to address their superannuation guarantee contributions (SGC) obligations in relation to these employees. Accordingly, if the working holiday maker earns Ordinary Times Earnings (OTE) of $450 or more pre-tax in a month, their employer is required to remit to the individual’s nominated superannuation account 9.5 percent superannuation calculated on the working holiday maker’s OTE amount.

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