Changes to the amount of tax paid by working holiday makers (the so-called “backpackers’ tax”) were passed into legislation by the Australian Government last year and came into effect on 01 January 2017. So, what does this mean? If you employ staff who are working holiday makers and may be affected, read on.
The first thing to be aware of is that there are changes to the eligibility to work. Previously, working holiday makers could only work for a maximum of 6 months with the one employer. However, as of 01 January 2017, they can now stay with the same employer for the full 12 months of their visa, as long as the second 6 months is at a different location.
There are also changes to the rate of tax working holiday makers pay. They are no longer entitled to the tax-free threshold and instead are taxed at 15% for the first $37,000. The usual marginal tax rate will apply for any amounts over $37,000.
If you’re an employer of working holiday makers, there are a number of steps involved in being compliant with the new regime.
- You must be registered. Employers must be registered for Pay As You Go Withholding (PAYGW) and have an Australian Business Number (ABN) or a withholding payer number. You must also be registered with the Australian Taxation Office (ATO) as an employer of working holiday makers. Due to problems with the ATO website, the deadline to regiser has been extended until 31 January, 2017. Regsitered employers will withhold tax at 15% on the first $37,000.
- You must confirm your employee’s status. You must check the status of your employee’s visa to ensure they are eligible to work. Your employee is a working holiday maker if they hold a visa subclass 417 (Working Holiday) or 462 (Work and Holiday). You can check their status using the Visa Entitlement Verification Online service (VEVO).
- PAYG Payment Summaries. The new tax rates only apply to any income earned from 01 January 2017, so you will need to issue a separate payment summary for any income from 01 July 2016 to 31 December 2016. Therefore, any employees who are working holiday makers and were employed before 01 January 2017 will receive 2 payment summaries at teh end of the financial year. Speak to your payroll system provider to find out the best way to do this as you may need to terminate the employee and reinstate them at the new tax rate. We can also help you with this process.
Table A: Working holiday makers’ income tax rates for 2016-17 from 01 January 2017
| Taxable Income | Tax Rate | Value (a) |
| $0 – $37,000 | 15% on each $1 up to $37,000 | 0.15 |
| $37,001 – $87,000 | 32.5% on each $1 over $37,000 to $87,000 | 0.325 |
| $87,001 – $180,000 | 37% on each $1 over $87,000 to $180,000 | 0.37 |
| $180,001 and over | 47%* on each $1 over $180,000 | 0.47 |
*Includes the Temporary Budget Repair Levy of 2%
NB If no TFN is provided, you must withhold 47% on total payment made.
If you have any questions or need assistance with applying these changes to any of your employees, get in touch. We’d love to help.
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