Backpacker superannuation tax set to rise to 95%

Newly proposed ‘backpacker tax’ legislation includes an extreme hike to the tax on backpackers’ super. 

They make up around a quarter of Australia’s agricultural workforce, but backpackers in Australia are set to be taxed 95 percent of their superannuation when they leave the country.

Yet the new ruling is actually part of a multitude of tax reforms designed to encourage more working holiday makers to come to Australia.

Backpacker super tax increases from 38% to 95%

Fulfilling an election promise to review the tax arrangements for travellers on working vacations, the Coalition’s new tax reforms will increase the tax on superannuation – dubbed the Departing Australia Superannuation Payment (DASP) – from 38% to 95%, in a move designed to keep superannuation payments within Australia.

The Passenger Movement Charge (PMC) will also increase by $5, to $60 in total.

Provided the tax package passes both houses of parliament, these new reforms will be effective from 1 July 2017.

How is that encouraging more backpackers to come to Australia?

According to the Government, the higher backpacker superannuation tax is designed to offset the costs to the federal budget of other measures within the Working Holiday Maker Reform Package.

These include:

  • Scrapping plans for a 32.5% backpacker income tax to instead introduce (from 1 January 2017) a tax of 15% (under the government’s latest Bill) for earnings up to $37,000/year. Ordinary marginal tax rates apply for any income over the $37,000.
  • A $50 reduction in the relevant visa application charge, down to $390.
  • Allowing backpackers to stay with one employer for up to 12 months, provided the second six months is worked in a different region
  • Providing a $10 million funding package for Tourism Australia to promote the working holiday scheme to young people overseas.
  • Providing another $10 million towards the ATO and Fair Work Ombudsman (FWO) to set up an employer register in a bid to crack down on worker exploitation.

The significant reduction in income tax and up-front costs are designed to provide working holidaymakers with more money to spend whilst in Australia, whilst the near-complete taxation of superannuation will mean backpackers will take less money overseas to their home countries.

The overall package aims to significantly increase the numbers of working holidaymakers coming to Australia, with the new company register aiming to improve employee welfare and working conditions.

The number of working holiday visas has declined since 2012, with the Department of Immigration reporting a 5.4% decrease in visa grants over the past year – a trend the government aims to reverse.

There are concerns from Australian stakeholders, however, with the Victorian Farmers’ Federation stating that the high tax on superannuation contributions is effectively passed on directly to employers – many of whom are local farmers and business owners.

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