Tax rate changes for working holiday makers

From 1 January 2017, as a working holiday maker the first $37,000 of your income is taxed at 15%, with the balance taxed at resident rates. A working holiday maker (WHM) is a holder of a visa subclass 417 (Working Holiday) or 462 (Work and Holiday).

As a working holiday maker the employer is also required to pay superannuation if the working holiday visa holder is eligible.. When the working holiday visa holder leaves Australia, they can apply for a Departing Australia Superannuation Payment (DASP). The tax on any DASP made to working holiday makers on or after 1 July 2017 is 65%.

Employer obligations

When a WHM starts work, they should give their  employer a TFN declaration. This tells the employer everything they need to know to work out how much tax to withhold from their pay. The employer will check if you have a visa subclass 417 (Working Holiday) or 462 (Work and Holiday), but the WHM should tell them anyway to ensure they taxed correctly.

Employers of working holiday makers are required to register with the ATO as employers of working holiday makers. Registered employers of working holiday makers will withhold tax from your pay at 15% on the first $37,000 of income.

If a WHM works for an unregistered employer, they must withhold tax from your pay using foreign resident tax rates. Foreign resident tax rates apply a rate of 32.5% to the first $37,000 of income.

Tax comparison

The working holiday maker tax rate is different to the tax rate for Australian residents. The working holiday maker tax rate is 15% until you earn $37,000. A WHM is then taxed at the same rate as Australian residents. Australian resident taxpayers get the first $18,200 tax free (known as the tax free threshold), and then pay 19% until they earn $37,000.
 
Foreign residents and working holiday makers pay the same tax rates on income over $37,000.
 
The following examples taken from the ATO website will give you a good idea of how this works, and the key differences between working holiday makers and Australian residents.
 
Example

Klaus is a German backpacker on a 417 visa and earned $37,000 between 1 January 2017 and 30 June 2017. Klaus will pay 15% of his income in tax i.e. $37,000 x 15% = $5,550

Klaus:

  • does not pay the Medicare levy (he is not entitled to use the Medicare system)
  • is not entitled to the low income tax offset (as a foreign resident).
  • In total, Klaus will pay $5,550 tax.

 
Example

Louise is an Australian resident and earned $37,000 in the 2017 income year. Louise gets the first $18,200 of her income tax free. Louise will pay 19% tax on the income between $18,200 and $37,000. That works out to be:

($37,000 – $18,200) x 19% = $18,800 x 19% = $3,572
 
In addition, Louise also:

  • pays the Medicare levy of 2% = $37,000 x 2% = $740
  • is entitled to a credit for the low income tax offset = $445
  • In total, Louise pays $3572 + $740 – $445 = $3,867.

Written by Michael van Schaik

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