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Working holiday visa means higher tax

13 June 2016 by News Desk

People on a working holiday visa in Australia may have been saved from a big rise in tax on their earnings but they still pay higher tax than Aussies.

Working holiday visaThe Australian government planned changes to tax laws that meant visitors with a working holiday visa could pay almost three times more in tax.

Widespread opposition to the planned new tax rules forced the government to review the policy, announced as part of the 2015 National Budget.

The main issue was the potential impact on Australia’s regional workforce.

There was concern that the tax changes could add to already decreasing working holiday maker numbers and impact on seasonal worker availability. Also, that it would hinder Australia’s international competitiveness in attracting youth travellers and lead to a rise in unregulated cash payments to these workers.

Darrell Todd, founder of thinkingaustralia, says: “Common sense has prevailed and these tax changes have now been scrapped. The policy would have badly hit everyone on a working holiday visa as well as the Australian tourism and agricultural industries.”

In the tourism industry alone the country is facing a shortage of 127,000 workers over the next five years. Around 10 per cent of workers in the tourism industry are workers from overseas.

A further 40,000 Working Holiday Makers annually contribute to the prosperity of the wider agricultural sector including the horticulture, abattoir and general agriculture sectors.

Working holiday visa tax burden

The proposed changes meant that a non-resident person earning $40,000 per year would have be liable for $13,000 in personal income tax, leaving an after tax income of $27,000.

Now that the changes have been scrapped, under current tax rules a non-resident person earning $40,000 per year would be liable for just $4,547 in personal income tax, leaving an after-tax income of $35,453.

Working holiday makers and other temporary workers may now be better off when it comes to tax paid on their wages but in other areas they pay a higher rate of tax than Aussie residents.

When temporary residents leave Australia permanently they may withdraw their accumulated superannuation (pension fund) balance. The tax rate on this is between 38 and 47 per cent.

But Australian residents who withdraw their superannuation (pension) balance before the age of 55 pay a tax rate of just 20 per cent.

To work legally as a working holiday maker an individual has to obtain an Australian Tax File Number (TFN). These numbers are available to non-residents who have the required working visas, including:

Working holiday makers (subclass 417)
Entertainment (subclass 420)
Sport (subclass 421) and
Work and holiday makers (subclass 462)

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