Here’s what we know about the ‘Backpacker Tax’
Many of our current students were previous working holiday makers in Australia so we did some digging to see who might be able to and how much you may be able to claim back after the latest bombshell from the High Court relating to the tax on Working Holiday Makers.
Here’s the backstory: A British woman (Catherine Addy) alongside Irish company Taxback.com took the ATO to court over discriminatory tax charges for Working Holiday Makers.
Originally dismissed by the Federal Court, she appealed the decision and saw the case taken up by the High Court of Australia.
By Australian law, some temporary visa holders who live in Australia for over 6 months are classed as ‘residents’ for tax purposes. An Australian resident does not ordinally pay tax on any income which is below the tax-free threshold of $18,200. However, Working Holiday Makers regardless of their length of stay in the country get taxed at 15% of their entire income without any tax-free threshold.
This can make a significant difference to the tax you need to pay, especially at lower income levels. To visualise this, let’s look at the tax year 2017-2018.
Taking an example income of $24,333.
A WHM would pay a flat rate of 15% tax on that income, equalling; $3,649.95 tax which goes to the Australian Taxation Office (ATO).
A resident for tax purposes earning the same income would be taxed at 0% up to $18,200. Then at 19% on any income above the tax-free threshold up to $37,000. In this case, it would be $24,333-$18,200 = $6,100 19% * $6,100 = $1,165.27
That’s a whopping ($3649.95 - $1165.27) $2,484.68 difference!
Therefore, a resident would pay $2,484.68 less tax than the working holiday maker.
The High Court unanimously voted in favour of her case, that Ms Addy was indeed discriminated upon because of her nationality, and that the tax contravened an agreement against double taxation signed with the UK.
So, with thousands of Australian dollars potentially making their way towards you, it would be worthwhile figuring out if you’re eligible, and if so, speaking to a tax lawyer or accountant to help you claim back your overpaid tax.
Will all working holiday makers be able to claim back from the backpacker tax?
Only working holiday makers from specified countries (countries that hold treaties with Australia against double taxation) will be eligible for a rebate under these terms. These countries include: UK, Germany, Chile, Japan, Israel, Turkey and Norway.
If you were a Working Holiday Maker from any country outside of those named above, you would not be considered a resident for tax purposes regardless of your length of stay in Australia. This means that you are unfortunately not eligible for this specific tax refund.
Why can’t all working holiday makers claim a tax refund under the backpacker tax?
It’s important to note that most Working Holiday Makers are non-residents for tax purposes and therefore will be unaffected by the change. The case was won because Australia hols anti double-taxation treaties with the 7 countries listed above.
If this is not you, don’t be upset. The Working Holiday Maker tax was introduced to avoid the higher rates that ordinary non-residents would have to pay, so Australia is still looking out for you too!
How much can be claimed?
The specific amount that you will be able to claim back will highly depend on your specific circumstances, including how much tax you paid overall, how much you earned and a few other factors. It is best that you work with an accountant to calculate how much you could be owed.
Details are also still yet to be confirmed, as ordinarily, the ATO does not recognise tax reassessments that are sent in over 2 years after the original tax assessment was lodged.
How do I claim back the working holiday maker rebate?
In order to claim back your tax, you will need to seek a new assessment from the ATO. We would advise contacting a registered accountant/taxation lawyer who would be able to assist. More information will be provided to affected taxpayers “as soon as possible” according to Treasurer Josh Frydenberg.
Which years can I claim back the money for?
At worst, you should be able to claim any extra tax you paid on tax assessments that you lodged in November 2019 or later. At best, you should be able to claim back the tax from the year 2017-today as the backpacker tax was introduced in 2017. However, the ATO does not usually accept tax reassessments if they are more than 2 years old.
The ATO is likely to make an official announcement about who and for which years will be able to be reassessments in due course.
Can I still claim the backpacker tax rebate if I am no longer a working holiday maker?
You can still claim back the backpacker tax if you are no longer a working holiday maker. It shouldn’t matter what visa you are currently on.
Can I still claim the backpacker tax rebate if I am no longer in Australia?
You should be able to claim back the backpacker tax even if you have already left Australia.
Is there a deadline to claim back the backpacker tax rebate?
You usually have two to four years to lodge an objection and appeal for reassessment of income tax. However, we would advise speaking to a registered accountant to see what timeframe will apply to you in your particular case.
I am a business who hires Working Holiday Makers – what should I do?
The official advice is to continue making payments in the usual way, following the rates that are published in the working holiday maker withholding tables until the ATO updates the website with further guidance.
In conclusion, the future looks very promising for thousands of backpackers. However, until the ATO gives an official statement, sit tight and wait for further announcements.