Government Proposes Huge Increase to Backpacker Tax

 
The 2015 government budget is out, typically something for everyday Australian’s to worry about but this year is completely different. A provision has been placed that will affect working holiday makers from July 1 2016. All 417 and 462 working holiday makers will lose the tax free threshold, meaning every day you earn on the working holiday visa will be subject to tax, tax at a rate of 32.5%. ( If legislation passed)

The Current Working Holiday / Backpacker Tax Situation

 
Currently anyone on an Australian working holiday visa will be exempt from tax on the first $18,200 of their earnings. ( provided you have been in the country for at least 180 days of the tax year in question)
 

Proposed Working Holiday Tax Situation

 
Every dollar earned by working holiday makers will be subject to a 32.5% tax. How this will be implemented is unsure, whether employers will be required to without 32.5% tax weekly or how the system will work is still to be confirmed.
 

A working holiday maker tax example

 
Until Jan 1 2016

You earn $10,000 while in Australia on a working holiday visa and are taxed $2,000. You have only received $8,000 in payments.

Refund: You will receive back: say $2,000 this year as a refund!
When: July 1 onwards you can apply to get your backpacker tax refund.

** If you have been working this year you can use the free tax refund calculator to see how much you are due**

After Jan 1 2016

You earn $10,000 while in Australia on a working holiday visa and are taxed $2,000. You have only received $8,000 in payments.

Refund: You will actually owe the government $1,250 as the effective tax rate will be 32.5%. So needed to be taxed $3,250
 

Numbers Summary

 
In short this means every dollar you earn you will be required to pay 32.5% tax. This legislation has not been passed and the full conditions are not known but right now it’s not looking fantastic. The good news is that working holiday makers for this financial year are and the 2015/2016 financial year that arrive in 2015 are still eligible for the tax free threshold. The average tax refund is $2600.
 

The Analysis

Joe Hockey Speaks

What does this mean for working holiday makers

 
Long term, working holiday and second year visa numbers will go down. Working holiday makers find it hard enough to find work at the moment. The desire to continue the search will diminish if 32.5% were to be taxed. Employment of working holiday makers in temp, admin, hospitality roles will go down across the board.

The desire to work and holiday in Australia will be take big hit and working holiday makers will return home to say how little they effectively earned after tax. Australia may become a place for tourist and skilled migrants with working holiday visas becoming thing of the past.
 

How will this affect the fruit picking industry?

 
If this legislation goes through it will be much harder for fruit picking industry to source working holiday makers to fulfil harvest labour requirements.

Working holiday makers find it hard enough to find specified work at the moment. Specified work includes fruit picking, farm work, pearling along with other “less desirable jobs”. The main incentive to complete 88 days of “specified work” in a regional area is to qualify for the second year visa. (This second year visa is only available to 417 visa holders, 462 working holiday visa holders aren’t eligible.)

Most second year visa holders will obtain the 88 days from 2-3 employers as they follow the harvest trail. The is seen as a time for saving money to continue their travels for the following year.
 

What proportion of people doing fruit picking on working holiday visas?

 
41,319 second year visas were granted from work specified work completed in agricultural, fishing and forestry sectors during the 2013-14 financial year. The same time their were 113,384 462 and 417 Working Holiday visa holders in the country. The trend over the past years have seen that approximately 20% of all working holiday visa holders are in Australia on a second year visa. Meaning they have completed 88 days of specified work in rural Australia.
 

How much are fruit pickers earning on average? What will a 32.5% tax do to take home money?

 
The average weekly fruit picking pay is around that $650 per week, after tax that’s $438 if 32.5% were to be directly taxed from their income. (At this stage we are still unsure how this will be implemented and if the legislation will pass)

The typical working holiday maker tax refund is $2600 something working holiday makers bank on every July to continue their travels. This new tax structure will change the entire working holiday and Australian travel mentality. Working holiday makers may need to save more before arriving in Australia, travel less or find an alternative location like Canada or New Zealand.

( Full time and part time workers are subjected to different minimum wages under the horticultural award 2010 (pastoral award minimums very similar as well). Full/Part time $16.37 per hour, Casual $21.08 per hour. The reality is most working holiday makers are employed on a casual basis which means this may attract the higher hourly rate but they may work less hours each week.)
 

What other industries are likely to be affected ?

 
The tourism industry will be affected, there will be less working holiday makers, they will stay in the country a shorter period of time or simply come as backpackers . Backpackers stay an average of 73 nights and spend over $5400, while working holiday makers have an extended stay averaging 8 months and spend over $13,000 each.
 

What do you think?

 
Have your say? Would you still have come to Australia if you had to pay 32.5% tax with no tax free threshold?

If your still confused about this situation you reach out to a backpacker tax specialist below, but we hope we’ve spelt it all out for you!