Tax Rules Change for Working Holiday Makers
Visa (subclass 417)
During the Federal Budget earlier this year, the government proposed changes to tax rules for working holiday makers. The changes have been revised and are now law, and will be coming into effect on 1 January 2017.
There is no longer an option for working holiday makers to claim the tax free threshold. They will be taxed at 15% up to $37,000, and then taxed at ordinary marginal rates after that threshold.
Employers of working holiday makers will be required to undertake a simple, once-off registration with the Australian Taxation Office to be able to withhold tax at this new rate.
Employer registration has been extended to 31 January. If you are employing working holiday makers, you will not be penalised as long as you register by 31 January 2017. You can still use the new withholding tax rate of 15% from 1 January 2017.
Employers who do not register will be required to withhold tax at the 32.5% rate or higher, as per the foreign resident tax rates.
The worker must apply for this temporary visa before entering the country for the first time. Although the visa is valid for up to one year, the worker can generally only be employed with one employer for a maximum of six months.
Many registered agents and employers, who have previously employed foreign workers, have already been notified by the ATO of the coming changes and been advised to register for the new tax.
Tax for Working Holiday Makers
|Weekly Earnings||Weekly Rate|
|$0 – $711
||15% up to $37,000 p.a. if employer registered for working holiday maker tax
|$712 – $1,673
||32.5% ($37,001 to $87,000)
|$1,673 – $3,461
||37% ($87,001 to $180,000)
|$3,461 and over
||45% over $180,000
|Note the above rates do not include Medicare levy of 2% or the Temporary Budget Repair Levy of 2% for incomes over $180,000.
Payment Summaries for Working Holiday Makers
For working holiday makers who work both before and after 1 January 2017, two payment summaries will be required, with the two different tax rates applying to the gross payments, depending upon the time of payment.
There have been ATO changes made to the Payment Summary Annual Report and EMPDUPE file, for those businesses that employ working holiday makers with visa 417 and 462 or if Section 57A of the Fringe Benefits Tax Assessment Act 1986 applies.
If either of these situations apply, you must use the latest version 12.0.0 when preparing payment summaries. Otherwise you can use version 11.0.1 EMPDUPE file; see below table for which software versions are compatible with versions 11 and 12.
Options for Payment Summary Reporting
- Use two separate card files for the one employee. Terminate them at 31/12/16 without any final pay. Create a new card file from 1 January 2017, making sure to carry over any entitlements from the “terminated” employee card. This process will produce two payment summaries for each employee.
- Use the one card file for each employee, but split the wages paid into amounts relevant to pre 31 December 2016, and post 1 January 2017. If your software allows it, manually adjust the payment summary amounts to produce two payment summaries.
- Use GovReports to manually enter amounts for employees; two entries per employee will be required.
Note: Employers who did not register for the reduced tax rate and continued to withhold at the foreign resident rate of 32.5% are required to issue the usual one payment summary per employee.
Software Solutions for WHM Employee Setup
MYOB have updated their software. You must load the new tax tables, then assign the new tax rate to the relevant employees. This is listed as “Working Holiday Maker” or “No Tax File Number Working Holiday Maker”. For businesses that employed working holiday makers before 1 January, and who are registered for the new tax rate, these employees will need to be terminated at 31 December with no final pay. Create a new employee card with the correct residency status flagged, and start them on 1 January. Make sure to carry over any entitlements. This will ensure two payment summaries are produced. For more information about handling working holiday maker payments, see the Working Holiday Makers support note.
Xero have updated their software. When setting up a new employee, in the tax details tab there is the option to flag the residency status as Working Holiday Maker. For workers who were engaged prior to 1 January, and who are registered for the new tax rate, these employees will need to be terminated at 31 December with no final pay. Create a new employee file with the correct residency status flagged, and start them on 1 January. Make sure to carry over any entitlements. Note: the TFN declaration for WHM cannot at this stage be filed with the ATO from within Xero. This must be done either by paper form or via GovReports. See the Xero guide to Working Holiday Makers.
Reckon have issued instructions on how to treat this tax. See their information on Backpacker tax rate in RAB.
QBO (KeyPay) have issued changes to their Tax Calculation Options. There is now an option to tick a box ‘is approved working holiday maker’. Note: make sure the box ‘Australian resident for tax purpose’ remains unticked.
See Working holiday maker PAYG changes from 1st January 2017.
Other software programs
If your software does not yet offer a specific tax rate for WHM, use the manual tax adjustment or withholding variation option to tax correctly, according to the earnings of the worker, and whether the employer has registered or not.
Departing Australia Superannuation Payment for Working Holiday Makers
From 1 July 2017, the rate of tax on the Departing Australia Superannuation Payment (DASP) for working holiday makers will be increased to a flat rate of 65%. This will apply to all components of the payment.