Working Holiday Makers (Backpackers) Tax

working holiday makers backpacker tax

Most people would have noticed all the commotion about changing the tax laws around working holiday makers (WHM) more commonly referred to as the Backpacker tax. In most cases, working backpackers in Australia on short term visas would be classified as non-residents for Australian tax purposes. As a result, the recent changes should benefit those individuals.

However, in reality, many of these individuals have rightly or wrongly classified themselves as Australian residents for tax purposes, whereby they gain the benefit of obtaining the tax-free threshold and lower marginal tax rates. This was in many cases resulting in many backpackers paying little or no tax.

Under the recently introduced legislation, a new tax rate now applies to Working Holiday Makers effective 1 January 2017.

Who Qualifies as a Working Holiday Maker (WHM)

Following the legislative amendments, assessable income derived from 1 January 2017 (and any deductions related to that income) by a WHM is subject to a new set of income tax rates and calculations, irrespective of the taxpayer’s actual residency status.

A taxpayer is a WHM if he/she holds either of the following visas:

  • Subclass 417 (Working Holiday) visa
  • Subclass 462 (Work and Holiday) visa
  • A bridging visa permitting the individual to work in Australia if:
    • The bridging visa was granted under the Migration Act 1958 in relation to an application for a Subclass 417 or 462 visa;
    • The Minister administering that Act is still to make a decision about the application; and
    • The most recent visa, other than a bridging visa, granted under that Act to the individual was a Subclass 417 or 462.

What Rates of Tax Apply Under the WHM Rules?

Broadly, where the WHM rules apply, the first dollar of income up to $37,000 would be taxed at 15% and any excess would be taxed at regular marginal tax rates.

The rates of tax applying to a taxpayer’s ‘working holiday taxable income’ for the 2017 income year are:

Taxable Income Tax Payable
$0 – $37,000 15%
$37,001 – $87,000 32.5%
$87,001 – $180,000 37%
$180,001+ 47%

This includes the Temporary Budget Repair Levy (‘TBRL’) which is payable at 2%, for taxable income that exceeds $180,000. The 47% will revert to 45% from 1 July 2017, once the TBRL is removed.

These rates of tax apply to ‘Working Holiday Taxable Income’ from 1 January 2017, while a taxpayer is a WHM. ‘Working Holiday Taxable Income’ is an individual’s assessable income for the year of income from sources in Australia (while they are a WHM), reduced by any related deductions incurred in earning that income.

Any ‘Working Holiday Taxable Income’ derived prior to 1 January 2017 will still be subject to the normal rates of tax (i.e., applicable resident or non-resident tax rates depending on the actual residency status of the taxpayer).

Where a WHM, from 1 January 2017, has both ‘working holiday taxable income’ and ‘non-working holiday taxable income’ in an income year, the ‘working holiday taxable income’ is notionally ‘added’ to the remaining ‘non-working holiday taxable income’ when applying the applicable (resident or non-resident) marginal tax rates.

Employer Responsibilities – Registration as A Registered WHM Employer, PAYG Withholding and Payment Summary

Registered employers of WHM’s must withhold tax from employer PAYG payments at the required rates applying to WHMs; broadly, 15% up to $37,000 and then at the WHM’s marginal tax rates (unless an employee fails to provide a TFN, in which case, withholding for the 2017 income year is 47%).

An unregistered employer must withhold at 32.5% instead of 15%.

Click here for more information on registering as a WHM employer.

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Contact Online Tax Australia for All Your Working Holiday Maker Tax Enquiries

WHM is the tax issue of the moment. Whether you’re an employer, or a backpacker, you need to get your head around your entitlements and your responsibilities and the best way to do that is to contact the friendly team at Online Tax Australia today: