The political fight may be over, but the confusion continues for many farmers and working holiday makers about how the new backpacker tax rules apply to them.
New income tax rates start in the middle of this financial year, and there are changes to backpackers’ superannuation taxes too.
ABC Rural has asked the Australian Tax Office and the Immigration Department for some more information, which we’re summarising for you here.
Disclaimer: we are not tax experts, and you should always seek advice on your own situation from the ATO website, the Immigration Department website, or your accountant.
I’m a backpacker on a 417 or 462 Working Holiday visa. So: what income tax rate am I actually paying this financial year?
Let’s start with the second half of the 2017 financial year, because that’s the easy bit: from January 1, 2018, all backpackers will pay 15 per cent in income tax from their first dollar.
Things are more complicated for wages earned before the new year.
The current law is that all non-residents who work in Australia, are subject to a 32.5 per cent income tax from their first dollar earned.
So, if you’re a backpacker whose employer is already withholding 32.5 per cent in tax right now, and you don’t qualify as a resident, then that is what you’re going to have to pay.
The ATO says that the chance of a backpacker qualifying as a resident is pretty low.
If you’re a backpacker who does qualify as a resident under the old rules, you will still be able to claim the tax-free threshold for wages you earn before January 1, 2018.
But if you keep earning money after January next year, that will eat into your tax-free threshold.
Hang on. I thought the Government said that a 32.5 per cent rate “would apply from January 1” unless their compromise bills went through Parliament. Doesn’t that imply that 32.5 per cent does not apply before then?
It’s true to say that for a long time it was hard to get a straight answer on this, from either the Government or the ATO. But in fact the 32.5 per cent rate is the common law rate right now.
The whole fight Australia has been having over the last 18 months was actually about enforcing the existing tax law, as interpreted by an Administrative Appeals Tribunal ruling back in March last year. It’s not about creating a new tax law.
The existing tax law is that if you’re a non-resident in Australia for tax purposes, you have to pay 32.5 per cent income tax from your first dollar earned. So if you don’t qualify as a resident now, then you have to pay 32.5 per cent until January 1, 2018.
What if I just say I’m a resident even if I’m not? What would actually happen?
Well, first of all that would be morally and legally wrong. Your tax return is a legal document.
There are financial and maybe even visa consequences too.
The ATO says that it will get information from the Department of Immigration and Border Protection, which will “help identify people who are on a 417/462 visa and ensure that their tax is assessed correctly”. So there’s a greater chance they will find you if you do the wrong thing.
The ATO also says that if you don’t pay the right amount of tax, you’ll owe them even more money. Or, as they more politely put it, you “can be charged interest on any shortfall, and may be subject to other penalties“.
Those “other penalties” sound ominous. What are those?
Indeed. We asked the Department of Immigration and Border Protection whether there might be visa consequences for people who do the wrong thing with their tax.
That is, if you skip out on your tax bill, could you be prevented from getting another visa to enter Australia in future?
There appears to be a risk that could happen.
An Immigration Department spokeswoman told ABC Rural that it’s up to the ATO to decide how to penalise people who lie on their tax returns.
But, the spokeswoman also noted that if you’re suspected of engaging in fraud or other criminal activity, then the department can consider whether there are grounds to refuse a future visa application.
If you’re still in Australia, the department could cancel your visa and kick you out. If that happens, you could also be prevented from returning to Australia for a period of time.
What about superannuation?
The new tax arrangements for backpackers’ superannuation take effect on July 1, next year.
The new rules draw a clear line: if you’re a backpacker who is leaving the country and claiming superannuation from July 2018 onwards, then you will lose 65 per cent in tax (the Departing Australia Superannuation Payment).
It doesn’t matter whether you earned that superannuation under the new rules or the old rules: if you claim it from July 1, the whole amount is taxed at 65 per cent.
If you leave Australia and claim your superannuation before July, you’ll lose 38 per cent in tax.
I employ backpackers. This is all really complicated. Am I going to be given some clear guidance to make sure I do the right thing?
Yes. The ATO has made a new online employer registration form available on its website, and says a new tax table will be made available before the end of the year to help employers withhold the correct amount of tax.
The ATO’s website is online after two days of a mass outage.
Check out that website for more information.
One last thing: I vaguely remember the Government talking about raising the age limit for Working Holiday visas. Is that happening or not?
It’s not happening yet.
The Government is still considering raising the age limit for working holiday makers from 30 to 35, but when that might actually happen is still completely up in the air.
For now, and until something changes, the current eligible age range of 18 to 30 remains in place.