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Australia To Review Plans For 'Backpacker Tax'

by Mary Swire,, Hong Kong

16 March 2016

The Australian Government has announced a review of plans to introduce a so-called "backpacker tax" on those taking up Working Holiday visas.

Budget 2015 included a proposal to reform the tax residency rules to treat most Working Holiday Makers temporarily in Australia as non-residents for tax purposes. This would have prevented such individuals from accessing the tax-free threshold. As a result, those affected would have been taxed at 32.5 percent on income between AUD1 and AUD80,000 (USD59,369). The measure was due to enter into force in July, 2016.

This so-called "backpacker tax" has been criticized by the Australian tourism industry and agricultural sector. In February, Steve Whan, Manager of the National Tourism Council, warned that the change would result in a drop in working holiday-makers, meaning "fewer workers in rural and regional areas, particularly in agriculture and hospitality." He stressed that "working holiday-makers do not displace Australian workers, but instead create more economic activity and more jobs."

The National Farmers' Federation also launched a campaign against the measure. It cautioned that "without the labor provided by backpackers, agriculture would face acute shortages and tourism would suffer."

Announcing the review, Tourism Minister Richard Colbeck said: "Concerns have been raised about the impact of the 2015 budget measure on tax arrangements for Working Holiday Makers, particularly our global competitiveness as a backpacker destination. We have therefore decided that the proposed tax arrangements require further discussions to ensure Australia does not lose market share in backpacker visitation."

Colbeck added he will consult with ministerial colleagues in the Agriculture, Employment, Immigration, Regional Development, Industry, and Treasury departments, and with the Prime Minister and Cabinet to prepare a new, revenue-neutral proposal. The Government has already begun discussions with the tourism and agriculture sectors. Once this process is complete, Colbeck will present his proposal to the Treasurer, for consideration by the Cabinet.

"The key issue is to ensure we have a balanced and equitable approach to the tax status for workers in Australia on visas," Colbeck explained. He acknowledged that the tourism industry is "facing a shortage of 127,000 workers in the next five years," and noted that a further 40,000 Working Holiday Makers annually contribute to the agricultural sector.

The review was welcomed by the Tourism Council. Whan said: "For months we have explained the worrying consequences of the ill-conceived proposal to abolish the tax-free threshold for Working Holiday Makers. Rather than treating working holiday-makers as an easy source of tax revenue, the Government should recognize the economic benefits they bring to small businesses and their Australian employees. Scaling back the proposed backpacker tax would boost economic activity in regional and rural areas."

TAGS: individuals | tax | small business | business | employees | budget | Australia | tax thresholds | tax rates | tax reform | trade association | trade | individual income tax | Employment | Immigration | Work | Immigration

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