A Backpacker's guide to Australian tax and other topics
A person holding a Working Holiday visa (class 417 or class 462) is generally referred to as a
backpacker. He must be under the
age of 30. He (or she) is legally entitled to work during his holiday in
Australia. He is
entitled to remain in Australia for 12 months, work for half of that time but
must not stay at any one job for more than six months. While in Australia, he can apply to have his visa extended from 12 months to 24 months (class 417 only). To qualify for the extension, he must, in general, have spent at least three months working in agriculture in rural areas. Australia has reciprocal
Working Holiday (class 417) visa arrangements with UK, Ireland, Canada, Norway, Sweden, Finland, Estonia,
Denmark, Netherlands, Germany, Belgium, France, Italy, Malta, Cyprus, Japan, Korea, Hong Kong and Taiwan.
Australia also has Working Holiday (class 462) visa arrangements with Indonesia, Malaysia, Thailand, Bangladesh, Turkey, Argentina, Urguay, Chile, USA, Poland, Portugal and Spain. The main difference between class 417 and 462 is that class 462 cannot be extended.
can also apply for other temporary work visas or even a permanent visa
while in Australia provided, of course, that he otherwise qualifies. In recent years, the normal way of achieving permanent residency in Australia is to a) arrive in Australia on a temporary working visa, b) then obtain an employer-sponsored temporary work visa and c) apply for permanent residency after two years. The most popular visas applied for by backpackers whilst in Australia are a) employer-sponsored temporary work visas and b) permanent residency visas. If a backpacker applies for a permanent visa, then in judging his eligibility, he will be
awarded extra points for having
spent time on a working holiday in Australia. A backpacker who applies for
permanent or temporary residence will stand a strong chance of obtaining it if a) he has
professional or trade qualifications, b)
he has some years work experience in his profession or trade and c) he speaks
good English. It generally takes from 5 to 8 months between applying for a work visa and obtaining it.
A backpacker can also apply for other temporary work visas or even a permanent visa while in Australia provided, of course, that he otherwise qualifies. In recent years, the normal way of achieving permanent residency in Australia is to a) arrive in Australia on a temporary working visa, b) then obtain an employer-sponsored temporary work visa and c) apply for permanent residency after two years. The most popular visas applied for by backpackers whilst in Australia are a) employer-sponsored temporary work visas and b) permanent residency visas. If a backpacker applies for a permanent visa, then in judging his eligibility, he will be awarded extra points for having spent time on a working holiday in Australia. A backpacker who applies for permanent or temporary residence will stand a strong chance of obtaining it if a) he has professional or trade qualifications, b) he has some years work experience in his profession or trade and c) he speaks good English. It generally takes from 5 to 8 months between applying for a work visa and obtaining it.
Further information regarding obtaining permanent and temporary visas can be obtained at the Immigration Department's website. Applications can be made online.
Australian residents carry a Medicare card. This entitles them to free or subsidised medical care. Non-residents, e.g. working holiday visa holders, are not entitled to subsidised medical care unless covered by treaty. Australia has concluded reciprocal medical agreements with the following countries viz. UK, Ireland, New Zealand, Norway, Sweden, Finland, Netherlands, Belgium, Italy, Malta, Slovenia.
Residents of these countries, with the exceptions of New Zealand and Ireland, mostly have access to health care on the same basis as Australian residents i.e. they get free public hospital care, a refund of doctors' fees and subsidised prescriptions. However, backpackers from Italy and Malta are covered only for the first six months of their stay. Backpackers can apply in person at at any Medicare office and obtain a Medicare card similar to the card carried by Australian residents. They must produce their passports to Medicare. Many doctors charge only the set fee ( i.e. "bulk bill") so the patient has nothing further to pay in those cases. Residents of New Zealand and Ireland are also entitled to free public hospital care and subsidised prescriptions but not a refund of doctors' fees. However, they can have free access to a doctor by attending an out-patients' clinic at a public hospital. Backpackers who are not residents of any of the afore-mentioned countries will have to rely on their travel insurance, if any, to get a refund.
If a backpacker has paid medical expenses in Australia and he is entitled to a refund, he can obtain the refund by applying in person at any Medicare office or online. He should take his passport with him when when attending for medical treatment and also when claiming the refund.
For example, assume Fiona, a UK backpacker holding a Medicare card, sees a doctor who "bulk bills" and therefore pays nothing to the doctor for the consultation. She obtains a prescription for "the pill" from the doctor. Then she goes along to her local pharmacist and pays him the standard prescription charge of $36.10 to have the prescription dispensed.
Persons departing Australia permanently are entitled to receive a refund of superannuation contributions
paid by their ex-employers on their behalf. "Superannuation contributions" is
Australian term for "retirement pension contributions". All employers must
contribute a compulsory 9.5% of wages to an approved superannuation (pension)
fund. The backpacker is entitled to a
refund of this when he has left the country. However, the refund is subject to
a tax-deduction of 35% i.e. the taxpayer receives the refund less 35%.
Application for the refund must be made
from outside the country. However, it can be applied for
from outside the country. Some superannuation amounts will be held by the Tax Office. Other superannuation amounts will be held by the respective superannuation funds. Accordingly, details of superannution funds that the backpacker has contributed to must be provided to the Tax Office. The Tax Office then will send details of your application to each of the Funds that you have nominated. They, in turn, will contact you directly and pay you the refund, normally within 28 days. The Tax Office maintains a register of lost superannuation accounts i.e. person for whom the superannuation funds have no longer a valid address. It is probable that a quite a few backpackers are on this register. The register may be consulted online at the Tax Office's SuperSeeker site.
Accordingly, before leaving Australia, a backpacker should 1) contact all of
his former employers, 2) from each employer request a tax PAYG Payment Summary
(Group Certificate) if he has not already
received one and also ascertain from the employer a) the name of the
superannuation fund to which the employer has contributed and b) the
employee membership no.
Accordingly, before leaving Australia, a backpacker should 1) contact all of his former employers, 2) from each employer request a tax PAYG Payment Summary (Group Certificate) if he has not already received one and also ascertain from the employer a) the name of the superannuation fund to which the employer has contributed and b) the employee membership no.
Let us take an example of a typical backpacker superannuation refund. Fiona earned $5,000 as a fruit picker during her working holiday in Australia. Her employer contributed 9,5% of $5,000 i.e $475 in superannuation. Fiona will get back $308.75. i.e. 65% of $475.
Backpackers not holding a Working Holiday visa are generally not entitled to work under the terms of their visa. But if they do in fact work, then they are subject to Australian tax in exactly the same way as Working Holiday visa holders.
Before starting work in Australia, a person must obtain an official Tax File No.; otherwise tax will be deducted from all wages received at the rate of 46.5%. When applying for the Tax File No, proof of identity must normally be supplied. An application form to obtain a Tax File No. can be obtained from the local Tax Office. However, a backpacker can now obtain a Tax File No. online from the Tax Office's website. This has the added advantage that under this arrangement proof of identity does not have to be supplied. If a backpacker expects to be self-employed during any part of his stay in Australia, then he should obtain an Australian Business No. (ABN) from the Tax Office. Otherwise tax will be deducted at 46.5% from his payments. The ABN can be otained online. Sometimes you will be offered work either a) on a self-employed basis or b) as an employee. To help you decide which is the more appropriate basis in any given circumstances, the Tax Office has a calculator on its website which will help you in deciding. To sum up then, if you are going to Australia on a working holiday, be sure to apply for a Tax File No. (and an ABN, if necessary) before seeking work. After obtaining a Tax File No. and before beginning work, an employee must complete an Employee Declaration form. This requires the person to state whether he is a tax-resident or not. If he is not a tax-resident, the employer must deduct tax at non-resident rates i.e. 32.5%. Later, when completing his Tax Return, a taxpayer must also state whether or not he is a tax-resident.
The Australian financial year runs from the 1st July to the 30th June. Every backpacker should file an Australian Tax Return as soon as possible after the 30th June each year. If the backpacker is leaving Australia before the end of the financial year i.e prior to 30th June, then he can complete a Tax Return for the year in advance and lodge it with the Australian Taxation Office. A backpacker can now file his Tax Return online and, of course, from anywhere in the world. A backpacker does not need a tax clearance certificate from the Tax Office before leaving Australia or transferring funds overseas.
When completing the Return, it should be noted that the deductible expenses available to Australian employees are more generous than for many overseas countries. For example, taxpayers can claim as deductions from income "all expenses incurred in earning income". This will include travel on duty, protective clothing and footwear, washing and laundry of protective clothing, cost of training courses, trade union fees, tools, business use of private phone, relevant books and publications, licences and registration fees, stationery used for work, bank charges re deposit of wages, tax agent fees, donations to charities etc. A backpacker cannot claim the cost of his living expenses in Australia as a living-away-from-home deduction or allowance. A taxpayer can claim up to $300 in work-related expenses before he will be required to provide receipts to the Tax Office if audited.
Most people in Australia engage a Tax Agent to lodge their Return. The Tax Office will send any refund to the Tax Agent if an agent has been engaged. Tax Returns can be lodged from an overseas location as well. In such a case, the best solution would be to contact an Australian-based Tax Agent through the Internet. As previously mentioned, a backpacker can also file his Tax Return online
How does the taxation of backpackers differ from the taxation of Australian workers in general?
First, it must be observed that, under the present interpretation of the law by the Tax Office, a backpacker may or may not be deemed to be a tax-resident of Australia. Tax-residency is quite distinct from immigration-status residency. Determing who is regarded as an Australian tax resident is a complex area of taxation law. From a study of the decided court cases, the following rules can be extracted regarding persons with temporary immigration visas. a) Those who come to Australia solely to work will be regarded as tax-residents. b) Overseas students will be regarded as tax-residents. c) Holiday-makers will not be regarded as tax-residents. e) Those combining a holiday with work will sometimes be regarded as tax-residents and sometimes not. An example of the latter class is a person holding a Working Holiday visa. The Working Holiday visa is given for two purposes i.e. a) work and b) holiday. Those coming to Australia on a Working Holiday visa primarily to work will generally stay in one place and will thus be regarded as residents. Those coming to Australia on a Working Holiday visa primarily for a holiday will generally travel around to see the country and will thus be regarded as non-residents. It should be observed from this that backpackers deemed to be non-residents will in general be "travellers" while those deemed to be residents will in general be "non-travellers" i.e. those living a settled existence. The Tax Office now has calculators on its website to determine whether a person is a tax-resident. These calculators adopt a generous interpretation of the tax-residency rules and will most often deem a backpacker to be a tax-resident. It is in the backpacker's interest to use these calculators. Use this calculator if you have just arrived in Australia or been here more than six months. Use this calculator if are about to depart Australia. You should keep a copy of your answers and the Calculator's findings. Further information regarding tax-residency can be found in the relevant tax Ruling at the ATO website and also at Residency.
For example, Mike lives in the same dwelling in the same city for the whole of his 12 months working holiday stay. For six months of his stay, he works as a construction worker on the same building site. Mike will be deemed to be a tax-resident of Australia.
What difference does it make if one is not regarded as a tax-resident? Residents are taxed on their world-wide income. Non-residents are taxed only on the income arising from Australia. Residents pay no tax on first $18,200 of annual taxable income and pay tax at 22% on the next $37,000. Non-residents, however, do not get the concession of a tax-free allowance and are taxed at a flat rate of 32.5% on the first $80,000 they earn in Australia. As they can only work for 6 months of their 12 months stay, they are therefore unlikely to earn more than $80,000, so as a general rule they are taxed at a flat rate of 32.5% on their earnings. Thus, a resident who earns $37,000 in a year will pay tax of $3,948 (including levy) but a non-resident backpacker will pay tax of $12,025 on the same income. .
Australia has concluded Double Taxation treaties with many countries. Most of these treaties provide that the following categories of persons are not subject to Australian tax but that they are subject to their home-country taxation regime. The categories are: a) self-employed professionals present and working in Australia for less than 183 days and who do not have their own office or branch in Australia, b) ordinary employees in Australia for less than 183 days and working for an overseas company that does not have a branch or office in Australia and c) teachers teaching in Australia for less than two years. Few backpackers will be able to avail themselves of these provisions.
What advantages do non-residents have, tax-wise?
You do not have to pay the Medicare levy if: a) you do not hold an Australian permanent resident visa and b) you have not applied for a permanent resident visa and c) you did not reside in one of the following countries prior to entering Australia – the United Kingdom, Northern Ireland, Italy, Malta, Sweden the Netherlands, Finland, Norway, Belgium or Slovenia. These countries have a Reciprocal Health Care Agreement with Australia. You must apply separately for exemption from the levy. The form to claim the exemption can be sourced online. It should be noted that backpackers from Ireland and New Zealand can apply for exemption from the Medicare levy. The reason for this is that they are not entitled to a rebate of doctor's fees. The Medicare levy is 2.00% levy on income which all residents have to pay to cover medical costs.
2. Non-residents do not have to pay Australian tax on income arising outside Australia.
3. In most cases, they pay tax at 10% only (and not 32.5%) on interest derived from an Australian bank account. This arises from the provisions of the Double Taxation treaties.
Let us take an example of a typical backpacker income-tax refund. Let us continue with the previous example of Fiona who earned $5,000 as a fruit picker during her working holiday in Australia.If Fiona is deemed to be a non-resident, the following compuation will apply. Her employer deducted tax at the regulation 32.5% from her wages i.e. 32.5% on $5,000 =$1,625. Fiona has the following tax deductions viz. protective clothing and footwear $300; fruit-picking implements $100; sun-protection products $100; bag $50. Total deductions are $550. Fiona lodges her Tax Return after the end of the financial year and employs a Tax Agent to lodge it for her. His fee is $120. Fiona's refund is calculated as follows.
Tax at 32.5% on $4450 is
Tax paid by deduction
Less Tax Agent's fee
As can be seen from the above, Fiona has a refund of $179 out of which the Tax Agent's fee of $120 comes, leaving Fiona with a net refund of $59. In effect, Fiona has received a refund at 32.5% on her deductions of $550 less the Tax Agent's fee. However, in most cases, work-related expenses would not exceed $300.If Fiona were deemed to be a tax-resident and had resided in Australia for at least 3 months of the financial year, then she would get all of the tax paid back i.e. $1,625.
GST tax is the Australian equivalent of VAT tax. It is 10% added to the sale price. It should be noted that all persons leaving Australia permanently are entitled to a refund of GST tax on goods taken out of the country. The goods must a) exceed $300, b) must have been bought within 60 days prior to leaving Australia and c) must be carried as hand-luggage. The refund is obtained at the airport at departure time. For example, a week before departue from Australia, Fiona buys a laptop computer for $660. Later at departure, after clearing passport-control at the airport, she presents a) the invoice and b) the laptop to the Customs officer at the refund-booth. The Customs officer arranges to have a refund cheque of $60 (i.e. 1/11th of the purchase price) sent to her home address.Once a backpacker has returned to his home country, he can lodge the following Australian forms online: a) lodge an application for exemption from the Medicare levy; b) lodge his Tax Return and obtain the appropriate refund and c) lodge an application for refund of superannuation paid. See above for detailed instructions for lodging these.
(This article is part of my pro bono publico work.)
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