On 16th March 2016, the Minister for Tourism: Senator Richard Colbeck issued a press release announcing that the Government would review the so called ‘backpackers’ tax announced in the 2015 budget measure (see below). They are now concerned about it’s impact on Working Holiday Makers plans to visit Australia and particularly our global competitiveness as a backpacker destination.

In his press release, the Minister noted that the tourism industry, alone, is facing a shortage of 127,000 workers in the next five years. Whilst over 90 per cent of workers in the tourism industry are Australian, the industry relies on workers from overseas for the remainder (and possibly more of the shortfall). A further 40,000 Working Holiday Makers annually contribute to the prosperity of our broader agricultural sector, including the horticulture, abattoir and general agriculture sectors.

The 2015 Budget Papers described this measure (at p26) as follows.

The Government will change the tax residency rules from 1 July 2016 to treat most people who are temporarily in Australia for a working holiday as nonresidents for tax purposes, regardless of how long they are here. This means they will be taxed at 32.5 percent from their first dollar of income.

Currently, a working holiday maker can be treated as a resident for tax purposes if they satisfy the tax residency rules, typically that they are in Australia for more than six months. This means they are able to access resident tax treatment, including the tax-free threshold, the low income tax offset (LITO) and the lower tax rate of 19 percent for income above the tax free threshold up to $37,000. [Instead, these backpackers will have to pay 32.5% tax from the first dollar up to $80,000 and then the same higher rates as residents.]

The Parliamentary Library issued a Research Paper about this measure.

Background – In the 2015–16 Budget the Government proposes to change the tax status of temporary working holiday makers from that of resident, to that of non-resident, from 1 July 2016.

Australia’s working holiday program – most individuals who will be affected by the proposed change will be participants in the ‘Working Holiday Maker Program’. This program allows young adults (aged 18 to 30) from eligible partner countries to work in Australia while having an extended holiday. Work in Australia must not be the main purpose of the visa holder’s visit. This is a cultural exchange programme which enables young travellers to have an extended holiday and earn money through short-term employment.

Qualifications for being classed as a working holiday resident tax payer – Currently, to work legally as a working holiday maker an individual has to obtain an Australian Tax File Number (TFN). These numbers are available to non-residents who have the required working visas. Examples of common valid working visa types are:

  • Working holiday makers (subclass 417)
  • Entertainment (subclass 420)
  • Sport (subclass 421) and
  • Work and holiday makers (subclass 462).

At this stage it is not clear whether the proposed measure will extend to holders of all of these visa types.

[FJM 20//3/16] [LTN 51, 16/3/16]