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Australian Senate Committee Report Backs Backpacker Tax

by Mary Swire,, Hong Kong

10 November 2016

The Australian Senate's Economics Legislation Committee has said it is satisfied that the 19 percent "backpacker tax" rate proposed by the Government represents a "good compromise" from the original plan for a 32.5 percent rate for working holiday makers (WHMs).

The Government has introduced legislation to treat most WHMs as non-residents for tax purposes, prohibiting them from accessing the AUD18,200 (USD14,032) tax-free threshold available to Australian residents. From January 1, 2017, they will be taxed at 19 percent on earnings up to AUD37,000, with ordinary marginal rates applicable after that threshold.

The Government had originally intended to introduce a 32.5 percent rate from July 2016. To offset the impact of reducing the rate to 19 percent, the Government has proposed increasing the Passenger Movement Charge (PMC) for all passengers departing Australia, and increasing the tax on WHMs superannuation payments when they leave the country.

In October, the Senate referred the package of reforms to the Economics Legislation Committee for inquiry. The Senate invited written submissions and held three public hearings.

In its final report, published on November 9, the committee said: "The committee is satisfied that a 19 percent tax rate represents a good compromise from the original proposal of a 32.5 percent rate for all WHMs, and notes strong support for the measure from a broad range of businesses and industry organizations in sectors that rely heavily on WHMs as a source of labor. The committee is also satisfied that a 19 percent tax will ensure Australia remains internationally competitive in attracting WHMs to travel and work in Australia."

The committee was also "comfortable" with the proposed increase in the departing Australian superannuation payments (DASP) tax to 95 percent. Currently, the DASP tax rate is 38 percent for the taxed elements of superannuation, and 47 percent for untaxed elements. The report noted that "superannuation exists to help Australians provide for the[ir] retirement, and the changes reflect this purpose."

The committee acknowledged concerns about the proposed AUD5 increase in the PMC to AUD60. However, it said a range of tourism operators and bodies had advised the committee that they did not anticipate the increase having a material impact on visitor numbers or on their businesses. The committee pointed out that this would be the first PMC increase since 2012, and that the rate proposed is broadly consistent with the increase in the Consumer Price Index over that period.

The committee recommended that after a suitable period, the Government review the taxation of WHMs, and assess the impact of the changes in the reform package.

The Labor Senators' dissenting report, published alongside the main committee findings, confirmed that the party will introduce two major amendments to the package. They will propose a reduction in the backpacker tax rate from 19 percent to 10.5 percent, and will oppose the PMC increase. The Senators argued that a 10.5 percent rate would mirror that charged in New Zealand and allow Australia to better compete with Canada, "which has the geographical advantage of being closer to Europe, the UK, and the USA."

The dissenting report warned that if the Government's proposals are implemented, working holiday makers "will no longer see the value in regional agricultural work – and they won't come."

A dissenting report was also prepared by Green Party Senators. They recommended that the backpacker tax be opposed, and that the Government "introduce new legislation which would remove the existence of any possibility of a differential tax applying to non-resident workers while they are backpacking in Australia." They likewise opposed the PMC increase.

TAGS: tax | business | pensions | air passenger duty (APD) | retirement | Australia | United Kingdom | tax thresholds | legislation | tax rates | Canada | New Zealand | United States | tax reform | individual income tax | Europe

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