Contents
- Who is a working holiday maker?
- Working holiday maker taxable income
- Australian resident WHMs from NDA countries
- Getting started as a working holiday maker
- End of the income year or completion of work in australia
- Claiming a departing australia superannuation payment (DASP)
- Registering employers of working holiday makers
- Employer’s obligation for registration
- Employer registration process
Who is a working holiday maker?
To be considered a working holiday maker (WHM) in Australia, a person must hold one of two specific visa subclasses:
- 417 Working Holiday Visa
- 462 Work and Holiday (Backpackers) Visa
Verification of one’s visa status can be done through the Visa Entitlement Verification Online system.
Determining tax residency in australia
For tax purposes in Australia, individuals are categorized as either:
- Australian Resident
- Foreign Resident
Generally, for most WHMs, whether they are Australian residents or foreign residents does not influence the applicable tax rates.
However, there exists an exception to this general rule. If an individual qualifies as both an Australian resident for tax purposes and originates from a country that has a non-discrimination article (NDA) in its tax treaty with Australia, special taxation rules may come into play.
It’s important to note that the majority of individuals who come to Australia for a working holiday or leisure purposes are considered foreign residents for tax purposes.
Working holiday maker taxable income
An individual’s working holiday taxable income for a given income year is determined by considering their assessable income generated from sources within Australia while they are officially recognized as a “working holiday maker.
This assessable income is then reduced by any deductions that the individual is eligible to claim for that specific income year.
Importantly, the working holiday taxable income calculation does not include certain components of an individual’s taxable income. These excluded components include any superannuation remainder and employment termination remainder related to the individual’s taxable income for that particular income year.
In simpler terms, working holiday taxable income represents the income earned in Australia during the working holiday period. It takes into account deductions that can be claimed, while excluding specific parts of the total taxable income, such as superannuation and employment termination amounts.
Australian resident WHMs from NDA countries
Some WHMs may qualify for the same tax treatment as Australian resident nationals, but specific conditions apply:
Eligibility criteria
- To be eligible, a WHM must be considered an Australian resident for tax purposes.
- Additionally, the WHM must be from a country that has a non-discrimination article (NDA) in their tax treaty with Australia.
The NDA countries include:
- United Kingdom
- Chile Finland Japan
- Norway Turkey
- Germany
- Israel
Most individuals holding working holiday visas are typically not classified as Australian tax residents. This is because the primary intention of people coming to Australia on these visas is to enjoy a holiday, and even if they engage in work during their stay, it generally doesn’t lead to them becoming residents for tax purposes.
However, there can be exceptions. If a working holiday maker meets conditions mentioned earlier, they may be considered Australian tax residents.
One common scenario where someone might be regarded as an Australian tax resident is if their initial purpose for being in Australia changes, and they obtain a different type of visa that allows them to stay and work in Australia for reasons other than a holiday.
Who is a resident australian national?
A resident Australian national is someone who fulfills both of the following requirements:
- They are a resident of Australia for tax purposes.
- They hold either permanent residency status in Australia or Australian citizenship.
Non-discrimination articles in tax treaties
Australia’s tax treaties with NDA countries include non-discrimination articles. These articles have an impact on how much tax WHMs from these countries are required to pay.
The non-discrimination articles ensure that WHMs from NDA countries are not subject to discriminatory tax treatment in Australia.
Non-discrimination articles in tax treaties
For Working Holiday Maker tax rates, see our Individual Income Tax Rates article.
If an individual is a WHM and their employer is duly registered as a WHM employer with the relevant authorities, the employer will withhold tax from the WHM’s income at a fixed rate of 15%.
If no Tax File Number (TFN) is provided, the withholding rate must be set at 45% on the total payments made.
WHM from Non-NDA countries or Non-Resident NDA country WHMs
If you are a WHM from a country without an NDA or a WHM who is not considered an Australian resident for tax purposes, then consider the following conditions applicable:
- You will continue to have tax rates applied at the standard 15% rate.
- Your employer will maintain tax withholding at the 15% rate.
- You are not required to lodge a tax return if your income consists entirely of salary or wages earned during your time as a WHM, and your total taxable income for the income year is below specific thresholds, which are:
- $45,001 for 2020–21 and subsequent income years
- $37,001 for 2019–20 and earlier income years.
Working holiday makers from NDA countries who are australian residents
If you are a WHM from a country with an NDA and are considered an Australian resident for tax:
- Taxes will be withheld from your pay by your employers at the 15% rate.
- You will be subject to a reduced tax liability, paying a lower amount of tax due to being assessed in a manner similar to a resident Australian national earning the same income in similar circumstances as a WHM.
Getting started as a working holiday maker
For individuals planning to work in Australia as Working Holiday Makers (WHMs), several vital steps and considerations should be taken into account:
Application for a tax file number (TFN):
It is imperative for those seeking legal employment in Australia to acquire a Tax File Number (TFN), serving as a unique identifier within the Australian tax system. This TFN aids in monitoring tax obligations and contributions.
The application process for a TFN is conveniently available online after obtaining the necessary work visa. While not compulsory, having a TFN is highly recommended as its absence may lead to higher tax withholdings by the employer.
Completion of a TFN declaration for the employer
Upon commencing employment in Australia, individuals will be required to furnish their employers with a TFN declaration. This declaration assists the employer in determining the accurate amount of tax to withhold from the employee’s earnings.
Even though employers usually verify the employee’s visa subclass (e.g., 417 Working Holiday or 462 Work and Holiday), it is advisable for employees to proactively communicate their visa status. This ensures precise tax calculations.
Employers hiring Working Holiday Makers (WHMs) are obligated to register with Australian tax authorities as WHM employers. This registration facilitates compliance with employment and tax requirements specific to WHMs. It is important to note that WHMs themselves are not required to undertake this registration.
Additionally, when eligible, employers are mandated to make contributions to the employee’s superannuation, which is a retirement savings fund.
Familiarity with workplace rights as a WHM
WHMs have the same workplace rights as any other employee working in Australia. These rights are defined by the National Employment Standards (NES), which is a set of minimum employment entitlements.
The NES includes the national minimum wage, which sets the lowest pay rate that must be provided to all employees. It also outlines other fundamental employment entitlements, such as working hours, leave, and termination conditions.
End of the income year or completion of work in australia
When the income year comes to a close or individuals finish their work assignments in Australia, it’s important to take certain actions into consideration:
Accessing the income statement
At the conclusion of the income year or upon completing work in Australia, it becomes vital to determine whether access to the income statement is necessary.
The income statement, or payment summary, is typically provided by employers through the Single Touch Payroll (STP) system. This statement contains details about earnings, tax withholdings, and superannuation contributions.
In cases where employers do not utilize STP, they will issue a payment summary.
Lodging a tax return
The Australian income year spans from July 1 to June 30 of the following year. Depending on individual circumstances, there may be a need to lodge a tax return.
There is no obligation to file a tax return or provide a non-lodgment advice if the following two conditions are met:
- All income was earned as salary or wages during the period of being a Working Holiday Maker (WHM).
- The total taxable income for the income year remains below specific thresholds, which are $37,001 for income years prior to 2020-21 and $45,001 for the years from 2020-21 onward. However, the filing of a tax return is necessary if there is a desire to claim deductions.
Additionally, individuals may consider lodging a tax return if they believe they transitioned into the status of an Australian resident WHM from a country that has an NDA during an income year.
Claiming a departing australia superannuation payment (DASP)
When individuals conclude their stay in Australia and decide to return to their home country, they have the option to apply for a Departing Australia Superannuation Payment (DASP).
This process allows them to receive their superannuation funds accumulated during their time in Australia. However, it’s important to be aware that for WHMs, a DASP is subject to a 65% tax rate.
In other words, when WHMs choose to claim their superannuation as they leave Australia, a 65% tax will be deducted from the payment. This provides a way for them to access their retirement savings earned during their stay in Australia upon their return to their home country.
Registering employers of working holiday makers
In Australia, employers can register to withhold taxes based on specific income tax rates that apply to working holiday makers.
Working holiday makers, in this context, are individuals who hold specific visas, including the working holiday visa (subclass 417), the work and holiday visa (subclass 462), certain bridging visas related to subclass 417 or 462, or even a 408 visa.
To confirm a person’s visa status, they can register through the Department of Immigration and Border Protection’s online system called Visa Entitlement Verification Online.
This system allows employers to check the visa details of their prospective employees. Alternatively, individuals can use this system to request that their visa details be sent to their prospective employers through the email function.
Differential withholding rates for working holiday makers
In Australia, payments to working holiday maker employees are subject to varying withholding rates, depending on whether their employer is registered for this purpose.
The differentiation in withholding rates is intended to provide an incentive for employers to register and ensure that working holiday makers receive favorable tax treatment.
Employers who have gone through the registration process are entitled to apply more concessional tax rates when withholding tax from payments to working holiday makers. These rates align with the tax rates designed specifically for income earned by individuals on working holiday visas. This means that registered employers are allowed to withhold tax at these favorable rates.
Unregistered employers: standard non-resident tax rates
Employers who have not registered for this purpose are obligated to withhold tax at the standard income tax rates applicable to non-residents. This is because most working holiday makers are transient and often meet the criteria for being classified as non-resident taxpayers.
The concessional treatment of registered employers is designed to serve as an incentive for them to complete the registration process.
This approach aims to make registered employers more appealing to working holiday makers, as they can offer the benefit of more favorable tax rates.
Thus, it encourages compliance with the tax regulations and promotes the formalization of employment arrangements for working holiday makers.
Employer’s obligation for registration
Employers must formally apply for registration with the Commissioner, designating themselves as employers of working holiday makers.
This registration process applies to employers who are required to withhold tax from various forms of compensation, including salary, wages, commissions, bonuses, or allowances, all of which collectively constitute the individual’s working holiday taxable income.
It’s essential to note that once an employer has successfully registered, they are not permitted to reapply for registration if they are currently in an applicable suspension period that prevents re-registration.
This measure is taken to ensure employers adhere to their responsibilities.
Separate registration obligations
Crucially, the registration requirement for working holiday maker employees does not replace or nullify any preexisting obligations an employer might have regarding registration as a withholder.
These are separate aspects of taxation regulations, and both must be addressed if they apply to the employer’s situation.
Failure to comply with the provisions outlined may result in penalties for the employer. Specifically, they could face an administrative penalty of 20 penalty units. The value of a penalty unit is established in accordance with the tax laws.
Employer registration process
Employers aiming to access the concessional tax rates for their working holiday maker employees must follow a specific application procedure.
This process involves completing an official application form by the day they are initially required to withhold PAYG (Pay As You Go) amounts under Division 12.
However, the employers can be granted an extension for the application process if deemed necessary.
Mandatory declarations
As part of the application, the employer is required to make certain declarations in the approved form. These declarations include:
Genuine business requirement
If the employer operates a business, they must declare that there is a legitimate business need to employ one or more working holiday makers. It’s important to note that this requirement does not apply to employers who are not engaged in business activities. For instance, employers who hire domestic workers such as household staff are exempt.
Fair work act compliance
Employers must declare their commitment to complying with the Fair Work Act 2009 in relation to their employment of working holiday makers.
Visa verification
Employers must also confirm their commitment to verifying that any individual they employ holds a visa that categorizes them as a working holiday maker.
Providing information
Additionally, employers must furnish the Commissioner with information related to their current or prospective employment of working holiday makers. This information is to be submitted in the approved form.
Employers should be aware that making false or misleading statements during the application process can result in administrative penalties.
Cancellation of registration
The registration can be canceled under specific circumstances. One scenario is when the employer informs the Commissioner that they neither employ nor have intentions to employ any working holiday maker.
Additionally, the Commissioner may decide to cancel the registration if they become convinced that the employer or any related entity is not a fit and proper person.
Determining fit and proper person status
When assessing the fitness and propriety of the employer or related individuals, the Commissioner must notify the employer and grant them a 28-day period to make submissions on the matter.
The decision-making process involves considering several factors, including information submitted by the employer, court findings related to Fair Work Act 2009 violations, and compliance with PAYG withholding requirements.
Notification of cancellation
In the event that the Commissioner chooses to cancel the registration, the employer is promptly informed of the cancellation, along with the effective date, which cannot precede the day of the cancellation notice.
Additionally, a “suspension period” may be applicable, during which the employer is not eligible for re-registration.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.