Working Holiday Makers … proposed changes

9066598_f1024If the 2015-16 Budget Measure is legislated, then the tax status for Working Holiday Makers will all be changed from 1 July 2016.

Currently, holders of a working visa type (e.g. subclass 417, 420, 421 and 462) can apply the tax residency rules to their particular situation to determine if they are resident for tax purposes.

In May 2015, the government announced it is proposing to treat all Working Holiday Makers as non-resident for tax purposes. The tax rates for non-residents are higher than those for residents. Tax residents are entitled to the tax free threshold, which means the first $18,200 of income is tax free. For non-residents, there is no tax free threshold and the starting rate of tax is 32.5%. The tax on income of $18,200 would therefore be $5,915. It is not clear at this stage which visa subclasses the proposed measures will apply to.

There are concerns about the impact of this proposed measure around the attractiveness of Australia as a destination for working holiday makers. Visitors to Australia spend in Australia, but, with fewer after-tax dollars for the working visitor to spend, the proposed measure seems a short-sighted one.

Regional areas of Australia will be impacted, where working holiday makers are currently a good source of labour and, as such, the spending habits of these visa holders are regional too. Australian businesses in general could suffer too, as employers may find it difficult to source the casual labour that the working holiday makers fill.

Let’s hope the government realises the negative impact of this proposed Budget Measure and files it in the bin!

Contributed by Wendy Davies, Moore Stephens