How working holiday makers are taxed in Australia
If you are planning on becoming a working holiday maker (WHM) in Australia, you need to be aware of how your income is taxed.
If you are a working holiday visa holder (subclass 417 and 462) tax is withheld from your pay and you are required to lodge a tax return each year with the Australian Tax Office (ATO). Note, the financial year in Australia begins on 1 July and ends on 30 June the following year.
From 1 January 2017, WHMs are taxed at 15% on their first $37,000 of income and the excess at marginal rates (32.5% up to $87,000 per annum).
As a WHM, you may apply for a tax file number (TFN) and this will serve as your personal reference number with the ATO. A TFN is not compulsory, however, you will be paying less tax if you have one. You can apply for a TFN online through the ATO’s website once you receive your working holiday visa. (Click here for the link)
Your employer will ask you to complete a TFN declaration when you start working. This document will allow the employer to work out how much tax they will withhold from your pay.
Note, only employers properly registered with the ATO may withhold 15% from a working holiday makers’ salary. If they are not registered as an employer of WHMs, they must withhold at 32.5% based on the foreign resident tax rates. To apply the special WHM rate of tax, it is the employer who needs to be registered, not the WHM.
It is important to note that only income earned from 1 January 2017 is eligible for the WHM tax rate. Any income you earned before this date is taxed differently.
If you worked for the same employer before and after 1 January 2017 they should give you two payment summaries when you finish working for them or at the end of the financial year. Be sure to use this information to complete your income tax return correctly so you are not over-taxed.
The ATO will then calculate the amount of the tax you should pay based on your actual income for that year. If the deducted amount is more than your required tax amount, you will be refunded. Alternatively, you will receive a bill from the ATO if you have not paid enough tax. If you leave Australia permanently before 30 June, you can lodge your tax return early.
Your employer is also required to pay superannuation contributions on your behalf even if you are a seasonal employee. Generally, you are entitled to superannuation if you are over 18 years old and are paid $450 or more (before tax) each month. The ATO can provide further information relating to superannuation entitlements.
If your employer was contributing to your super while you were working with them, you can apply for a Departing Australia Superannuation Payment (DASP) after you have left Australia. Based on the new rates, your DASP will be taxed a 65% if it is paid to you on or after 1 July 2017.
If you require assistance in completing your income tax return, you are able to contact our team of experienced tax accountants here.
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