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Business Tax Tip – Employer of working holiday makers and tax rates

images/Business Tax Tips.PNGIf you have employees that are temporary residents or foreign workers, it is important to know the tax that applies and conditions the worker must meet, such as current work VISA – here iswhat the ATO says

Any employer can hire a working holiday maker, especially when they need labour for a short period. You can identify a working holiday maker as they will hold a Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462).

Working holiday makers are taxed at 15% from the first dollar earned, regardless of their residency status. Working holiday makers can't claim the tax-free threshold and must provide their tax file number (TFN). If they don't, you need to withhold tax at the top rate (see Individual income tax rates).

Working holiday makers are entitled to superannuation, if they are eligible.

You should not employ, or pay someone for work, if they don’t have permission to work in Australia.

What you need to do

To employ a working holiday maker in Australia on a visa subclass 417 or 462, you:

  • Should check your worker has the correct visa using the Visa Entitlement Verification Online External Link service;
  • Must register with us to withhold tax at the working holiday maker tax rate before making your first payment to them. Penalties may apply if you fail to register.

Someone can claim they are an Australian resident for tax purposes to obtain the tax-free threshold. However, the tax rate of 15% will override their selection if they are working in Australia on visa subclass 417 or 462.

See also:

Employer registration: working holiday makers

How to tax a working holiday maker

Once you register, you must withhold 15% from every dollar earned up to $37,000. The tax rates change for amounts above this.

Use the tax table for working holiday makers to calculate the tax on payments made to working holiday makers. The rates in this table apply to all payments made to working holiday makers, including:

  • Salary and wages;
  • Termination payments;
  • Unused leave;
  • Back payments, commissions, bonuses and similar payments;
  • Payments to actors and entertainers.

If you don't register, you must withhold tax at 32.5% from every dollar earned up to $87,000 and foreign resident withholding rates apply to income over $87,000. Penalties also apply if you employ someone with visa subclass 417 or 462 but don't register as an employer of working holiday makers.

You can use the Employee/contractor decision tool to work out if your worker is an employee or contractor for tax and super purposes. If the tool shows they are an employee you must tax them at working holiday maker tax rates even if they provide you an ABN.

See also:

Payment summaries

Unless you report using Single Touch Payroll, you are required to give a payment summary to every working holiday maker you employ.

All payments to a working holiday maker must be shown in the gross income section of the payment summary and identified using H in the gross payment type box.

If your payment summary doesn't have this box, then put the letter H next to the income earned by the working holiday maker. This is to help your worker to prepare their income tax return.

If an employee, who has been a working holiday maker, advises you they are no longer on a working holiday visa, you need to withhold tax at a different rate and provide two payment summaries for the financial year:

  • One payment summary while they worked using visa subclass 417 or 462;
  • One payment summary for the period they were not.

Please ensure the employment dates that you put on the payment summary are accurate.

Question? Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia

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Accounting Software Australia, MYOB, Quickbooks, accounts software, bookkeeping software
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