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 higher tax rate of 15% applies to working holiday makers earning up to $45,000 per year. So what is 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.
The 15% backpacker tax applies to working holiday makers 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 the correct amount of tax has been paid 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 $180,000. The special backpacker tax rates only applies to the first $45K you earn.
Working Holiday Rates
|Taxable income||Tax on this income|
|0 – $45,000||15%|
|$45,001 – $120,000||$6,750 plus 32.5 cents for each $1 over $45,000|
|$120,001 – $180,000||$31,125 plus 37 cents for each $1 over $120,000|
|$180,001 and over||$53,325 plus 45 cents for each $1 over $180,000|
How To Lodge Your Tax Return
Using a tax agent is more straightforward and less stressful than completing a tax return yourself and submitting it directly to the ATO. Tax agents are experts who are up-to-date on the latest tax laws, including any specific rules that apply to working holiday makers.
Tax agents will ensure you claim all of the deductions you’re entitled to in order to minimize your tax liability. As a working holiday maker, you may be eligible for deductions related to your travel expenses within Australia such as accommodation costs, and other work-related outlays. A tax agent can 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 correct amount of income tax has been withheld 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.
If you earn less than $45,000 and 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 a 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 and purchase additional meals as a result and receive an overtime meal allowance from your employer.
- Union fees and professional association membership costs can be claimed if they are related to your employment.
- Tools and equipment used in your work that cost less than $300, which can be immediately deducted in the year of purchase. Items over $300 will need to be depreciated.
Superannuation For Backpackers
Employers are required to start paying employees superannuation on any income paid. This ensures that backpackers on working holidays in Australia gain the maximum advantage from their superannuation fund.
Backpackers are entitled to multiple superannuation accounts, though maintaining one fund is beneficial. Each fund charges fees and accumulating more money in one fund will earn higher interest when departing Australia.
Backpackers can choose how their superannuation is invested. 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 choose investments, their funds will default to a balanced option covering a range of investments.
Superannuation in Australia is highly regulated to ensure citizens and permanent residents have sufficient finances in retirement. While backpackers working in Australia can claim superannuation, they must fulfill requirements to be eligible.
To receive superannuation when leaving Australia, backpackers must:
- Show they held an Australian Temporary Resident Visa
- Show the visa has expired or been cancelled
- Have left Australia
- Not be an Australian citizen, New Zealand citizen, or permanent resident.
Backpackers have only six months from the date their visa is expired or cancelled to claim superannuation.
Some departing Australia are ineligible to 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 don’t plan on retiring in Australia and intend to leave the country, can still claim some of their superannuation back. This refund is called a ‘Departing Australia Superannuation Payment’ (or DASP) which can only claimed if 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. They generally do not need to report the superannuation payment or tax withheld on an Australian tax return as they are considered non-residents for tax purposes.
By lodging a tax return before leaving Australia, backpackers can receive any refund owed to them via a direct deposit to their Australian bank account.
Taking the time to prepare an accurate tax return before leaving Australia is worthwhile for backpackers. A tax agent can help navigate the process and claim all eligible deductions to maximize their tax refund.