The backpacker tax return for the financial year 2016/17 is complicated in a sense that there are two tax brackets which will be applied for two set of periods during the financial year.
If you are holding a visa class 417 (Working Holiday) or 462 (Work and Holiday), please read on, as the way your tax return is handled will impact how much refund or how much more tax you have to pay.
From the period of 1 July to 30 December 2016, a 32.5% tax bracket will be applied for anything up to $80,000, from 1 January 2017 to 30 June 2017, the first $37,000 of the income is taxed at 15% with the balance taxed at Ordinary Tax Rates.
Also in the ATO website, they had already clearly defined that
“Many people who come to Australia for a working holiday or to visit will remain foreign residents for tax purposes. This includes people on visa subclass 417 (working holiday) or 462 (work and holiday) (backpackers)”
| Income tax bracket | |
|---|---|
|
0 – $80,000 |
32.5 for each $1 |
|
$80,001 – $180,000 |
$26,000 plus 37 cents for $1 over $80,000 |
|
$180,001 and over |
$63,000 plus 45 cents for each $1 over $180,000 |
However, for backpacker, the tax rate is being reduced from 1 January 2017 to 15 cents for the first $37,000.
Backpacker tax return specialist
In order to maximize the tax refund position for the backpacker, it is important to adhere to the followings tips
However, for backpacker, the tax rate is being reduced from 1 January 2017 to 15 cents for the first $37,000.
In order to maximise the tax refund position for the backpacker, it is important to adhere to the followings tips
Tip 1
Ensure you will receive 2 PAYG summaries from your employer, one for the period from 1 July 2016 to 31 December 2016, and another one for 1 January 2017 to 30 June 2017. For the second half of the financial year, ensure your employer has registered as a backpacker employer, else the tax rate for the second half of the year will be still subject to 32.5%. There should be a code of H next to the gross payment, if there is, then it means that your employer is a backpacker registered employer, and your tax rate for the second half of the year is subject to 15%.
Tip 2
EndureGo Tax as a professional CPA accounting firm will work with you to help you to claim the work related deductible items. The theory is the more deductible items you have the lesser your taxable income would be, hence your actual tax might be lower than the tax already being withheld, leading to a favourable refund position.
Some of the work related deductible items include:
- Mobile Phone
- Internet
- Uniform
- Laundry expense
- Stationary
- Travelling expense if you have to travel multiple different work places during the period
- Accounting fee
- Bank fee
- Sun screen or sun lotion if you have to work outside
Our qualified professional accountant will work with you to ensure that the work related deductible items are valid, and can be acceptable to the Australian Taxation Office.
Tip 3
Also, the way you claim your deduction will also affect the end tax position, for example
If John incurs a wage from 1 July 2016 to 31 December 2016 for $10,000, and also another wage of $10,000 from 1 January 2017 to 30 June 2017, and the employer for that period was registered as Backpacker approved employer. At the end of the financial year, he will receive two PAYG summaries, one for the first half of the year, and another one for the second half of the year with a code of H next to the gross payment.
If John has no deduction, then the amount of tax would be
$10,000 x 32.5% + $10,000 x 15% = $4,750
If John incurs $2,000 of work related expense and the tax agent attributes it to the second half of the period, then the tax would be $4,450.
If the accountant or tax agent attributes the deduction to the first half of the period, then the tax would be $4,100.00.
However, if we split it into equal basis across the two periods, then the tax would be $4,275.00
Hence if the accountant or tax agent would be able to use the correct technique to apply the work related expense, then the tax saving would be $650.00.
Some pitfall of the backpacker tax return
Some of the pitfalls of the backpacker tax return would be if the employer is not registered as a backpacker approved employer and they did not give you two PAYG summaries splitting into two periods of 1 July 2016 to 31 December 2016 and 1 January 2017 to 30 June 2017, then the income would be subject to 32.5%, if that is the case, we can still lower the tax rate, by lodging a private ruling to the Commissioner of Taxation seeking adjustment to the tax rate of 15%. As mentioned the difference of 32.5% and 15% would be a dollar difference of $5,250 for a $30,000 income.
Part year resident
If John had obtained a student visa or other visas other than 417, or 462, then it is highly likely we can write a private ruling and ascertain them to be resident for Australian Taxation Purpose, in that case, then assume John had obtained a student visa in 1 January 2017, he will be resident for the period of 1 January 2017 to 30 June 2017, and as the total income is below $20,000, John will be able to get a refund of $2,904 as he became tax resident for the period for the 6 months.
This year backpacker tax return is becoming very complicated and it depends on how well your tax agent can handle your situation and get maximise the tax refund for you. Hence please talk to us on 0410-829-900.
