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  • Employers of working holiday makers

    Working holiday makers are temporary visitors to Australia who hold a Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462).

    A special tax rate applies when you employ a working holiday maker – this is sometimes referred to as the 'backpacker tax'. However, working holiday makers are entitled to the same superannuation benefits as other employees.

    To employ a working holiday maker in Australia on a visa subclass 417 or 462, you must:

    Penalties may apply if you fail to register.

    You should not employ, or pay someone for work, if they don’t have permission to work in Australia.

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    How to tax a working holiday maker

    The Tax file number declaration form asks workers to declare if they're a working holiday maker, Australian resident, or foreign resident for tax purposes.

    You should apply PAYG withholding tax according to how your employees complete their declaration form.

    If a worker identifies themselves as an Australian resident for tax purposes, but our records indicate they're a working holiday maker, we'll notify both the employer and worker of their working holiday maker status and advise the employer to apply the relevant tax rate.

    Next steps:

    Registered employers

    If you're registered with us as an employer of working holiday makers, you should apply the working holiday maker tax rate of 15% from the first dollar your working holiday maker earns up to $45,000. The tax rates change for amounts above this.

    Use the tax table for working holiday makers to calculate the tax on all payments made to working holiday makers, including:

    • salary and wages
    • termination payments
    • unused leave
    • back payments, commissions, bonuses and similar payments
    • payments to actors and entertainers.

    Working holiday makers can't claim the tax-free threshold and must provide their tax file number (TFN). If they don't, you need to withhold tax at the top rate (see Individual income tax rates).

    Unregistered employers

    If you're not registered with us as an employer of working holiday makers, you must withhold tax at 32.5% from every dollar earned up to $120,000. For income over $120,000 you need to apply foreign resident withholding rates.

    Penalties may apply if you employ someone with a visa subclass 417 or 462 but don't register as an employer of working holiday makers.

    Superannuation

    Working holiday makers are entitled to superannuation. If they're eligible and paid $450 or more before tax in a calendar month, the employer has to pay super on top of their wages. Working holiday makers can apply to have this super paid back to them (after it's taxed) as a Departing Australia superannuation payment (DASP) when they leave Australia.

    Employing working holiday makers as contractors

    Make sure you understand the differences between employees and contractors for tax and super purposes. Penalties and charges could apply if you incorrectly treat an employee as a contractor.

    If your arrangement with your working holiday maker means they're an employee, you must tax your employees using the working holiday maker tax rate even if they provide you with an ABN.

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    Payment summaries

    Unless you report using Single Touch Payroll, you are required to give a payment summary to every working holiday maker you employ.

    All payments to a working holiday maker must be shown in the gross income section of the payment summary and identified using H in the gross payment type box.

    If your payment summary doesn't have this box, then put the letter H next to the income earned by the working holiday maker. This is to help your worker to prepare their income tax return.

    If an employee, who has been a working holiday maker, advises you they are no longer on a working holiday visa, you need to withhold tax at a different rate and provide two payment summaries for the financial year:

    • one payment summary while they worked using visa subclass 417 or 462
    • one payment summary for the period they were not.

    Please ensure the employment dates that you put on the payment summary are accurate.

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    Taxation of working holiday makers

    On 6 August 2020, the Full Federal Court handed down its decision in Commissioner of Taxation v AddyExternal Link in favour of the Commissioner.

    This case was about:

    • whether an individual who entered Australia as a working holiday maker was a resident of Australia for tax purposes, and
    • whether the individual was required to pay tax at the minimum 15% rate applying to working holiday maker income or at the rates that otherwise apply more generally to Australian residents (which incorporates the tax-free threshold).

    What does this mean?

    Your obligations when hiring working holiday makers have not changed.

    You should continue to apply the working holiday maker tax rate to workers who tick the box on the Tax file number declaration form stating they are a working holiday maker.

    If your employees question you about the taxation of their payments in response to the Addy court decisions, refer them to our website (ato.gov.au/WHM) for updates on the appeal and how this decision may affect them.

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      Last modified: 02 Dec 2020QC 50741