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Today’s Top Headlines




ATO Clarifies Australian Tax Treatment Of Backpackers

by Mary Swire, Tax-News.com, Hong Kong

03 November 2016

The Australian Taxation Office (ATO) has said that most holiday makers do not establish residency during their stay and, as non-residents for tax purposes, will pay tax on the first dollar of income they earn.

Legislation is currently before Parliament to introduce a so-called "backpacker tax" that will treat most working holiday maker visa holders as non-resident for tax purposes. If passed, it will mean that from January 1, 2017, working holiday makers cannot access the AUD18,200 tax-free threshold available to Australian residents. They will be taxed at 19 percent on earnings up to AUD37,000, with ordinary marginal tax rates applicable after that threshold. The Government had originally intended to introduce a 32.5 percent rate from July 2016, but amended its proposals following a backlash.

In the meantime, the ATO has moved to clarify the tax arrangements currently in place. It said that the amount a working holiday maker may pay will depend on their residency status for tax purposes.

The ATO explained that, at present, it already considers that most working holiday makers are non-residents due to their pattern of working and holidaying while in Australia. Non-residents are taxed only on their Australian-sourced income, and pay a tax rate of 32.5 percent on every dollar earned. If working holiday makers do establish residency for tax purposes, they will be taxed on their worldwide income, including wages from working in Australia.

Commissioner Chris Jordan said: "The reality is, what we see is that most working holiday makers are transient – they move around and do not establish residency in Australia during their stay. Therefore, as a non-resident for tax purposes, they will be taxed only on their Australian-sourced income, such as money they earn working in Australia, and they will commence paying tax on the first dollar of income they earn – at 32.5 cents in the dollar."

The ATO's announcement was however challenged by the Australian Chamber of Commerce and Industry, which argued that the ATO's position is not supported by existing publicly available figures. CEO James Pearson said that 2013-14 income tax statistics "show that there were just 11,500 non-resident taxpayers aged between 18 and 30. That is just 4.8 percent of the number of people who had working holiday maker visas in that year."

"Unless the Tax Office has more recent figures showing a massive change, it is hard to see how it argues that 'most' working holiday makers are non-residents," he added.

According to Pearson, "It would be concerning if the Government was seeking to use this inconsistent data to make the case that backpackers will face a reduced, rather than increased, tax burden with the introduction of the backpacker tax. It would also be concerning if the Government's original decision to bring in a 32.5 percent tax rate was introduced by default."

TAGS: tax | revenue guidance | commerce | Australia | tax thresholds | tax authority | tax rates | tax reform | trade association | chamber of commerce | trade | individual income tax

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