If you’re coming to Australia on a working holiday 417 visa (A working holiday visa) and a 462 visa (a work and holiday visa), you may have heard about the controversial “backpacker tax”. This tax rate of 15% applies to every dollar earned up to $45,000 per year for working holiday makers. So what is the backpacker tax, and what does it mean for you?
The backpacker tax was introduced in 2017 to ensure working holiday makers pay a fairer amount of tax on their Australian earnings. Previously, they were taxed at the same rates as non-residents, which started at 32.5% from the first dollar earned.
What is the Backpacker Tax?
The 15% backpacker tax applies to visitors from all countries with a working holiday visa arrangement with Australia. When you start working in Australia, your employer will withhold this tax rate from your paychecks and remit it to the Australian Taxation Office (ATO).
However, you may still need to lodge an Australian tax return during your stay. This is for two reasons. First, you may be eligible for tax deductions that can lower your final tax liability. Second, the tax return ensures you’ve paid the correct amount of tax based on your total income for the year.
Any income over $45,000 for working holiday makers is taxed at the standard resident tax rates, which range from 32.5% to a maximum of 45% for amounts over $190,000. The special backpacker tax rates only applies to the first $45K you earn.
Working Holiday Tax Rates in Australia
| Taxable income | Tax on this income |
| 0 – $45,000 | 15% |
| $45,001 – $120,000 | $6,750 plus 30 cents for each $1 over $45,000 |
| $120,001 – $190,000 | $33,750 plus 37 cents for each $1 over $120,000 |
| $190,001 and over | $54,100 plus 45 cents for each $1 over $190,000 |
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How To Lodge Your Tax Return as a Backpacker
While you can fire up a tax calculator and then lodge your tax return directly with the ATO, using a tax agent is more straightforward and less stressful. The best tax agents up-to-date on the latest tax laws, including any specific rules that apply to backpackers and working holiday makers.
ITP’s tax agents will go the extra mile, ensuring you claim every deduction you can. This can drastically reduce your tax liability and increase the refund you get back. As a working holiday maker, you can often claim deductions related to your travel expenses within Australia, including certain accommodation costs and other work-related outlays. Your tax agent will help you identify and correctly report all of these deductions.
Tax agents can also advise you on any complications related to your working holiday maker status. This includes ensuring the ATO has withheld the correct amount of income tax from your paychecks and providing guidance on maintaining your residency status for tax purposes.
If the ATO audits your return, your tax agent will work with the ATO on your behalf to address any issues. This removes a lot of stress and hassle for you. Worried the ATO might audit you? Visit our guide covering what to expect from an ATO audit.
If you earn less than $45,000, have had 15% tax deducted from all your income, and you don’t wish to claim any tax deductions, you are not required to lodge a tax return as a working holiday maker. This is because the correct amount of tax has been paid, so no adjustments will be necessary.
Working Holiday Maker Tax Deductions
As a working holiday maker, you can only claim tax deductions if you actually pay tax in Australia.
Some common deductible expenses include:
- Travel expenses related to earning your employment income, such as flights and transport to and from work locations.
- Work-related equipment and clothing purchases that are specific and essential for your role, like steel-capped boots, uniforms or safety gear.
- Self-education expenses if you undertake a course that has a sufficient connection to your current employment.
- Overtime meal expenses if you are required to work overtime, purchase additional meals as a result, and receive no reimbursement from your employer.
- Union fees and professional association membership costs if they relate to your employment.
- Tools and equipment used in your work that cost less than $300. You can deduct these in full in the year of purchase. Items over $300 will need to be depreciated.
Read: How Tax Deductions Can Reduce Your Tax Bill And Save $$$
Superannuation for Backpackers
Employers must pay employees superannuation on any income paid. This ensures backpackers on working holidays in Australia gain the maximum advantage from their superannuation fund.
Backpackers can have multiple superannuation accounts. However, each fund charges fees, and accumulating more money in one fund will earn higher interest. So maintaining one fund is beneficial.
Backpackers can choose how they wish to invest their superannuation earnings. Each fund offers investment options ranging from low to higher risk, allowing backpackers to decide the risk level for their superannuation. Obviously, higher risk investments offer higher potential earnings. If backpackers elect not to pick their investments, their fund will default to a balanced option covering a range of investments.
Australia has a highly regulated superannuation system, ensuring citizens and permanent residents can enjoy sufficient finances in retirement. While backpackers who spent time working in Australia can claim the superannuation they earned, they must fulfill requirements to be eligible.
To receive superannuation when leaving Australia, you must:
- Show you held an Australian Temporary Resident Visa;
- Prove the expiry or cancellation of your visa;
- Have left Australia;
- Not be an Australian citizen, New Zealand citizen, or permanent resident.
Note: Backpackers have only six months from the date of cancellation of their visa to claim superannuation.
Some people departing Australia can’t immediately claim superannuation. While this likely does not affect most backpackers, those entitled to retire in Australia or receive an age pension are ineligible unless they are at retirement age.
Leaving the Country?
Backpackers who leave the country with no plans on returning after retirement can claim a Departing Australia Superannuation Payment (or DASP). As mentioned, you can only claim this once your visa has expired and you’ve left Australia. Tax on the DASP is 65%.
The tax withheld by the superannuation fund covers the backpacker’s tax obligations in Australia. So you generally won’t have to report the superannuation payment or tax withheld on an Australian tax return.
By lodging a tax return before leaving Australia, you ensure you receive any refund owed to you via a direct deposit into your Australian bank account. A tax agent can help you navigate the process and claim all eligible deductions. Not only will this make the process easier, but it should also gift you with a nice departing bonus in the form of a healthy tax refund. If you’re a backpacker or working holiday maker looking to make the most of your tax return, get in contact with ITP today. Our friendly accountants are always happy to answer questions and offer expert assistance.