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ATO Issues Guidance On Backpacker Tax

by Mary Swire,, Hong Kong

16 December 2016

The Australian Taxation Office (ATO) has issued guidance on the income tax and superannuation changes that will enter into force from January 1 as part of the Government's "backpacker tax" package.

After months of political wrangling, the Senate this month passed legislation to prevent working holiday makers (WHMs) from accessing the AUD18,200 (USD13,389) tax-free threshold available to Australian residents. The so-called backpacker tax rate was originally set at 32.5 percent, but was later reduced to 19 percent, and then to 15 percent in a final compromise between the Government and opposition Senators.

From January 1, 2017, tax rates will therefore change for working holiday makers who are in Australia on a 417 (working holiday) or 462 (work and holiday) visa. In a bulletin for small business owners, the ATO said that companies employing WHMs on these visas must register with the ATO to withhold tax at the backpacker tax rate.

From January 1, 2017, employers will be required to withhold 15 percent from every dollar earned by working holiday makers, up to AUD37,000. Foreign resident tax rates will apply from AUD37,001. Where a business fails to register, it will need to withhold at the foreign resident tax rate of 32.5 percent, and penalties may apply.

Where a business already employs working holiday makers, it will need to issue two payment summaries (with different rates) for this year – one for the period to December 31, 2016, and a second for any period from January 1, 2017.

The ATO has also explained that, from July 1, 2017, departing Australia superannuation payments (DASPs) made to WHMs will be taxed at 65 percent. A WHM's total DASP will be subject to the 65 percent tax rate where they hold or have held a 417 or 462 visa and had superannuation contributed for them while they worked under either visa. This provision will apply to DASPs made on or after July 1, 2017.

The 65 percent rate will apply to the total DASP amount, including any superannuation a WHM may have earned while working under a different visa. DASP applications are generally processed within 28 days. An application can only be submitted once a DASP has left Australia and their visa is cancelled or has expired.

Payments made before July 1, 2017, will be taxed at the current rate, which is 38 percent for a taxed-element. When the Government proposed reducing the backpacker tax rate from 32.5 percent to 19 percent, it intended to partially fund this by increasing the DASP tax to 95 percent. The 65 percent rate formed part of the final compromise package.

TAGS: tax | small business | business | revenue guidance | employees | Australia | tax thresholds | tax authority | small and medium-sized enterprises (SME) | legislation | tax rates | tax reform | penalties | individual income tax

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