Q: What are the tax changes?
A: On 28 November 2016, the Treasurer announced tax rate changes for foreign residents who are on working holidays in Australia. The first $37,000 will be taxed at 15%. The usual marginal tax rate will apply for income over $37,000. They will no longer be entitled to claim the tax free threshold.
- you must register to withhold tax at the new rate: https://www.ato.gov.au/Business/Registration/Work-out-which-registrations-you-need/Taxation-registrations/Employer-registration--Working-Holiday-Makers/
Q: When do they apply from?
A: The ATO has confirmed changes apply from 1st January 2017. The 15% tax rate only applies to salary and wages paid from 1 January 2017. You will need to input the flat tax rate manually.
Q: Who do they apply to?
A: The Tax Table (Schedule 15) applies to payments made to employees who are working in Australia and at the time hold the following visas:
- Working holiday makers visa (subclass 417), or
- Work and holiday makers visa (subclass 462), or
- Bridging visa permitting the individual to work in Australia if:
- The bridging visa was granted under the Migration Act 1958 in relation to an application for a visa of a kind described in paragraph (a) or (b); and
- The Minister administering that Act is still to make a decision in relation to the application; and
- The most recent visa, other than a bridging visa, granted under that Act to the individual was a visa of a kind described in paragraph (a) or (b).
If you employ individuals under the Seasonal Worker Programme, the tax table for working holiday makers does not apply.
Q: How do I know if the employee holds one of these visas?
A: You can check if your employees’ visa subclass is 417 or 462 using the Visa Entitlement Verification Online service (VEVO).
Q: What about work rights?
A: From 1 January 2017, a working holiday maker can now stay with the employer for the full 12 months (this was previously 6 months) so long as the second 6 months is at a different location.
Q: What about Tax File Number Declarations?
For employees that started work before 1 January 2017
There is no need to give them a new TFN declaration (as you will have received a TFN when the employee started). You will need to confirm their visa subclass to ensure you tax them correctly.
For employees that start work after 1 January 2017
The TFN Declaration has not changed as yet. Until this is created by the ATO, you will need to check the visa status of all new employees using VEVO.
If a TFN has not been provided
You must withhold 47% from payments to a working holiday maker (ignoring cents), if:
- They have not quoted their TFN
- They have not claimed an exemption from quoting their TFN
- They have not advised you that they have applied for a TFN or have made an enquiry with us.
- If the employee has not given you their TFN within 28 days, you must withhold 47% from any payment you make unless we tell you not to.
Q: What happens if I am unregistered?
A: If you don't register, you must use the foreign resident withholding rates which start at 32.5% for the first $37,000. Penalties apply if you employ a working holiday maker with visa subclass 417 or 462 and you don't register as an employer of working holiday makers.
Q: How does this affect the PAYG Payment Summaries?
Only income earned from 1 January 2017 is subject to the working holiday maker tax rates. You will need a separate payment summary for any income from 1 July 2016 to 31 December 2016.
This will affect employees that started before 1 January 2017 as they will receive two PAYG Payment Summaries at the end of 2016/17 financial year.
This means you need to start a new employee record for any qualifying employee as at 1 January.
Q: When it comes to a working holiday maker being able to stay the second 6 months with the one employer, what is a different location?
The Department of Immigration has advised that a different location is clearly another state and if not another state, it must be a different end user (a different service to a different set of individuals).
With this being very new legislation and no comprehensive description easily available yet, we recommend you check with an employment law expert that has an understanding of Commonwealth Law.
Q: How do I tax a termination for a working Holiday Visa Maker?
As the Australian Working Holiday Programme (2017) (Backpacker Tax) is only applicable to salary and wages, termination payments are to be applied as normal.
To keep up with legislative changes we highly recommend membership of The Association of Payroll Specialists