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The Australian Tax Office
guidance for employers employing Working Holiday Makers
The Australian Taxation Office issued a practice note to
employers: Do you employ working holiday makers? on 21
December 2021 which sets out its current guidance for
employers who are registered with the Australian Taxation
Office as employers of Working Holiday Makers (WHM) and the
WHM has a Tax File Number:
If you employ working holiday makers, regardless of
the country they are from, you must continue to withhold
15% tax from their pay – unless you receive a pay as you
go variation notice from the ATO.
This follows the recent decision by the High Court in
the matter of Addy v Commissioner of Taxation. The
decision means an eligible working holiday maker may be
tax assessed the same as an Australian resident, if they
are both:
- an Australian resident for tax purposes, and
- from Chile, Finland, Germany (for 2018 and later
income years), Israel (for 2021 and later income
years), Japan, Norway, Turkey or United Kingdom.
If your employee is a working holiday maker from one
of the above countries and an Australian resident for
tax purposes, they can lodge a tax return at the end of
the income year to receive a tax refund (where
eligible).
Note the reference to Addy v Commissioner of Taxation and
the comments that follow.
This is the background:
- Since 1 January 2017, working holiday makers (on
Subclass 417 and 462 visas) have been subject to tax on
income at the flat rate of 15Ȼ in the dollar. They do
not have the tax-free threshold of $18,200 that
Australian nationals enjoy. Therefore, they pay more tax
than an Australian national would pay.
- Catherine Addy, a United Kingdom national, spent 2
years in Australia on a working holiday visa (Subclass
417). She challenged the tax, which is commonly known as
the backpacker tax, as being unfair because it
discriminated against her on the grounds of nationality
under the UK-Australia Double-Tax Treaty.
- The Australia-UK Double-Tax Treaty provides that a
United Kingdom national if they are doing the same work,
earning the same income, under the same ordinary
taxation laws as an Australian national, and if they are
a resident for tax purposes, then are entitled to be
taxed on income at the same rate as an Australian
national.
- The High Court of Australia applied that provision
to Catherine Addy, and so her income was not subject to
the backpacker tax. The provision applied because she
was resident in Australia for tax purposes.
- As the practice note states, Addy’s Case is
applicable to nationals from 8 tax treaty countries if
they can prove Australian residency for tax purposes.
- The key is therefore tax residency. This means that
they must satisfy the Tax Commissioner either that their
usual place of abode is not outside Australia or that
they intend to take up residence in Australia, so as to
take advantage of the lower rate of tax available to
Australian nationals. The Commissioner will require an
explanation and credible evidence.
- If not, the tax treaties provide no special
protection and these nationals will be taxed on income
at the same rate as working holiday nationals of other
countries: i.e. a flat 15₵ in the dollar.
For a complete analysis of the backpacker tax and Addy’s
case
click
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