‘Backpacker Tax’ – result of the review: tax at 19% up to $37,000 from 1 January 2017 (mid-way between the resident and non-resident rates)

On 27.9.16, the Treasurer announced the following resolutions of Cabinet regarding what has been called the ‘backpacker tax’ review.

1. From 1 January 2017 the tax rate for working holiday makers (entering under the relevant visa categories) will be 19% from the first dollar up to $37,000 (the upper income limit for the current 19% marginal rate for residents).
   • This effectively abolishes the tax-free threshold for working holiday makers (or those of them who could became ‘resident’).
   • But it is more attractive for holiday makers who couldn’t escape non-resident rates of 32.5% up to $80,000 (the upper income limit for the current 32.5% marginal rate for residents). This was the original announcement that caused the furore.
2. The Government will also reduce the application charge for working holiday maker visas by $50, down to $390.
3. We will introduce more flexible arrangements to benefit working holiday makers and industry, allowing an employer with premises in different regions to employ a WHM for 12 months, with the WHM working up to six months in each region.
4. In addition, we will task Tourism Australia to promote Australia to potential working holiday makers through a $10 million global youth targeted advertising campaign.
5. Employers will be required to undertake a once-off registration with the Australian Taxation Office – to generate more accurate data and boost integrity of the scheme (by preventing exploitation of working holiday makers). Employers who do not register will be required to withhold tax at the 32.5 per cent rate (though the worker can get the difference back on lodging a tax return). Working holiday makers will be made aware of registered employers via the publication of a list on the ABN Lookup.
6. The above measures reduced the budget ‘savings’ that were planned. To make up for this there are measures to increase revenue.
   • The Government will increase the tax on working holiday makers’ superannuation payments when they leave Australia to 95 per cent.
   • There will also be a one-off increase to the Passenger Movement Charge of $5.00 from 1 July 2017 [this measure has provoked protests from the rest of the tourism industry which resents having to ‘subsidise’ the backpacker measures].

[Treasurer’s press release] [LTN 187, 27/9/16]