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Working Holiday Makers: Recent Tax Implications You Should Know

Australia is one of the few countries in the world which has a working holiday visa program. This program allows backpackers and young people from other countries to work and travel in Australia.

However, like anyone living and working in Australia, there are some tax implications that you should be aware of.

The recent high court ruling regarding how working holiday makers are taxed may have implications for others on a working holiday visa.

In this article, we’ll take you through the complex maze on tax implications for both residents and non-residents working holidaymakers. We’ll also shed more light on what the recent court ruling means for you.

Working Holiday Makers Program: How It Works

Let me not bore you with the nifty details of how the working holidaymaker’s program actually works.

However, in a nutshell, this program allows anyone between 18 and 30 from over 40 partner countries to have an extended holiday in Australia, during which they can undertake short-term work.

Through this visa (subclass 417) you can enter and leave Australia as many times as you’d like within the 12 months of the date the visa was granted.

You can learn more here on how this working holiday maker’s visa works.

How Are Working Holiday Makers Taxed?

When you start work in Australia on this program, it’s important you make your employer aware that you’re on this type of visa so you can be taxed appropriately.

You can do so by applying for a tax file number before you begin work. And once you get the TFN, you then give your employer a tax file number declaration file.

Under the backpackers tax provisions (took effect on 1 January 2017), all working holiday makers are taxed at a flat 15% tax rate up to $37000 for all income earned while living in Australia. A higher-income earned attracted higher ordinary income tax rates.

Before this provision, the tax rates for working holiday makers were different and were based on tax residency status.

On 3 November 2021, the High Court made a ruling that effectively affects a person who is classified as a tax resident and also comes from countries that have double taxation treaty with Australia, and they include:

  • Chile
  • Japan
  • Finland
  • Norway
  • United Kingdom
  • Germany
  • Israel

Tax Residents vs Non-Tax Residents: How Does It Work?

As mentioned earlier, if you’re a resident of the above-mentioned countries, you’re eligible to pay less taxes if you’re classified as a “resident” of Australia for tax purposes.

However, the ATO clearly states that most WHMs are foreign residents for tax purposes.

Its possible for ATO to reconsider your tax residency status if, for example, you change your purpose for being in Australia. While there are many ways they can determine this, one way is if you obtain a different visa that allows you to stay and work in Australia for purposes other than a holiday. 

There are two methods that ATO uses to determine whether you qualify as a tax resident. While these methods are different, they often more factors considered with each circumstance. 

As mentioned, the ATO applies two tests to determine your residency status:

  • The residency test – this involves being able to show your life and work arrangements are consistent with your intentions to make Australia your primary home.
  • The 183-day test – If you live in Australia for more than 183 days in an Australian income tax year and can prove that you intend to remain in Australia long-term or permanently – or don’t usually live outside of Australia, then you may qualify.

While the 183-day test is clear cut, the residency test will consider all facts and circumstances which are relevant to your case. Things like the degree of continuity and your way of life will be considered as a whole.

There are other additional factors that ATO may consider which may be one or many of the following (sources from ATO website):

  • the purpose of your visit.
  • your residency intentions, that is whether you initially intended to reside in Australia permanently.
  • when you plan to leave Australia.
  • whether you hold a return airline ticket.
  • whether you have left Australia for any period since first arriving in Australia.
  • whether you have a permanent place to live in Australia (and if so, where this is, whether you are staying with relatives or friends, do you have a lease agreement). 
  • the assets you have in Australia (for example, investments, property or bank accounts).
  • whether you maintained a permanent place to live in your country of origin subsequent to arriving in Australia.
  • what assets do you have in your country of origin.
  • whether you are receiving income from non-Australian sources.
  • whether you have employment in Australia (the type of work performed, how long your employment is for, whether the employment could be extended and if yes, for how long.
  • whether you still have a position or job being held for you in your country of origin.
  • what social and sporting connections you have with Australia.

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