In the 2015-16 federal budget, handed down on May 12, 2015, the federal government announced plans to change the tax law, specifically the tax residency rules, to treat most people who are temporarily in Australia for a working holiday as non-residents for tax purposes, regardless of how long they are here.
This is the so-called “backpacker tax” and was proposed to apply from July 1, 2016.
The tax would mean these people would not be entitled to the tax-free threshold and would be taxed at 32.5% from their first dollar of income. The change has not yet been legislated.
The proposal sparked concern from those who employ backpackers, especially agriculture and tourism employers, and from tourism bodies.
As a result, the Minister for Tourism, Senator Richard Colbeck, has announced the government will review its plans regarding the “backpacker tax”. The government has said the review’s scope will cover taxation and superannuation arrangements under the program.
The Minister said he would be guiding the review through a whole of government process in close consultation with the agriculture, employment, immigration, regional development, industry, treasury portfolios, as well as the Department of Prime Minister and Cabinet, “to prepare a revenue neutral proposal”.
Discussions have already commenced on this issue with the tourism and agriculture sectors and these will continue with key industry groups, he said. In fact, chief executives of Australia’s leading visitor economy organisations met with the Minister on March 21. Representatives of the industry expressed strong concerns that applying a 32.5% tax to working holiday makers from the first dollar they earn will cause a further reduction in the number of international visitors applying for these working visas.
Working holiday makers are a crucial source of labour for the industry especially in regional Australia. The strong growth in the visitor economy that has been confirmed in the latest visitor survey figures is placing additional pressure on an industry that is already facing a significant labour shortage, which is projected to increase to 123,000 people by 2020.
In addition, representatives of the National Farmers’ Federation (NFF) also met with key government ministers in Sydney on March 21. An online petition, promoted by the NFF and its member organisations against the tax, has reached more than 30,000 signatures as primary producers, small businesses and workers across Australia continue to call on the government to put the tax on hold and focus on securing a long-term, sustainable agricultural workforce solution.
According to the NFF, in 2014-15 more than 38,000 working holiday makers worked on Australian farms, and on average spent almost $15,000 each across the year. NFF President Brent Finlay said it was “fool’s gold to assume a net revenue gain without taking these vital factors into account. Australian farmers are looking to build upon the significant growth potential of our global markets, and we can’t do it without our workforce.”
Deputy Prime Minister Barnaby Joyce said the review would help ensure the right measures are in place to support the two key growth sectors of agriculture and tourism.
“We know about 40,000 backpackers work in agriculture for a few months each year, the majority in horticulture at seasonal peaks,” he said.
Senator Anne Ruston, Assistant Agriculture and Water Resources Minister, said the review will look at the proposed tax arrangements to ensure Australia does not lose important market share in backpacker visitation.
“The clear aim is to make sure we have a balanced and equitable approach to the tax status for workers here on visas – we do not want to risk a slide into black market employment in agriculture and tourism,” she said.
However, the Tourism Minister cautioned the government does not want to create a tax advantage status for particular workers on a particular visa.
“We don’t want to do that and so it’s important that we have another look, it will need to be revenue neutral given the current budget status”, said Senator Colbeck.
A number of tourism industry bodies have welcomed the government’s review.
Once the government’s review process is complete, Minister Colbeck said the proposal will be presented to the Treasurer for consideration by Cabinet. No timeframe for the review was indicated.
SMEs that employ backpackers should keep an eye on developments with this proposal.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.