Date posted: 13/09/2016 3 min read

More time needed for Backpacker Tax policy design and implementation

Australian Government's Backpacker Tax review needs more time for multi-agency consideration

Chartered Accountants Australia and New Zealand has made a submission to the Government’s backpacker tax review.

Working holiday visas raise many economic, social and indeed ethical issues. For example, the utilization of unemployed or under-employed Australians, domestic labour mobility support, the appropriateness of the mix between various visa types and Australia’s refugee intake, as well as the role and responsibilities of labour hire firms. Like other workers, backpackers should be protected from unfair or illegal arrangements.

As Treasurer Scott Morrison has said: this is a complicated issue.

Commenting on the tax aspects, Chartered Accountants ANZ:

  • Agree with the government that classifying backpackers as resident in Australia for tax purposes is overly generous from a policy viewpoint
  • But classifying backpackers as non-residents and imposing a 32.5% rate on the first $80,000 of earnings makes Australia uncompetitive compared to other countries (including New Zealand) in key industry sectors such as horticulture and tourism
  • A concessional, easy to comply with tax regime is warranted for backpackers, using learnings from Australia’s tax treatment of participants in the seasonal labour mobility programme and other countries such as New Zealand.

Head of Tax Policy, Michael Croker, said the backpacker tax should be further delayed to enable Government officials to build an effective, multi-agency approach using a data platform such as Single Touch Payroll.

“This would involve a worker tracking strategy that helps employers and labour hire companies comply with their tax, Fair Work and other obligations,”
Michael Croker, Head of Tax Policy

Legislation to implement Single Touch Payroll is currently before Parliament but employers need time to learn about and implement the new system.

Under the CA ANZ model, on the spot tax file numbers and myTax accounts would be issued on arrival in Australia, with the traveller’s details (including non-tax resident status) accessible via the electronic look-up facility that underpins Single Touch Payroll.

Mr Croker said current “No ABN – No work” arrangements should be countered by denying Australian Business Numbers (business registration) to individuals with working holiday visas. Single Touch Payroll would also help identify foreign workers falsely representing that they possess ABNs.

Employers and labour hire companies which place such workers would be specifically authorized by the ATO to withhold PAYG tax at a concessional tax rate. As a condition of this authorization, payers would be required to deposit wages into a bank account (no cash in hand), and payers rorting the system would be denied income tax deductions for wages.

Using ATO data analytics, the PAYG withholding rate would reflect the marginal tax rate that would usually apply to Australians earning a similar level of income, with the Commissioner of Taxation empowered to advise payers of the rate appropriate to particular industry and income level.

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