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2016
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INCOME TAX RATES AMENDMENT (WORKING HOLIDAY MAKER
REFORM) BILL 2016
EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
Table of contents
General outline and financial impact....................................................... 1
Chapter 1 Income tax treatment of working holiday makers .......... 3
General outline and financial impact
Income tax treatment of working holiday makers
The Income Tax Rates Amendment (Working Holiday Maker Reform)
Bill 2016 applies a 15 per cent income tax rate to working holiday maker
taxable income (that is assessable income derived from Australian sources
by working holiday makers less relevant deductions) on amounts up to
$37,000, with ordinary tax rates for taxable income exceeding this
amount.
Date of effect: The amendments apply from 1 January 2017.
Proposal announced: On 27 September 2016 the Treasurer announced
the Government's Working Holiday Maker Reform Package, which
included amendments to apply a rate of 19 per cent tax for all working
holdiday makers. The amendment to apply a rate of 15 per cent was
announced by the Treasurer on 28 November 2016.
Financial impact: In the 2015-16 Budget the Government announced
that from 1 July 2016, working holiday makers would be taxed at
32.5 per cent from their first dollar of income, like other non-resident
taxpayers. This was estimated to increase revenue by $540 million over
the then forward estimates period, to 2018-19.
On 17 May 2016 the Minister for Small Business and Assistant Treasurer
announced the Government would undertake a review of the broad range
of issues affecting the supply and taxation of working holiday makers.
The 2015-16 Budget measure was deferred by six months, to start from 1
January 2017. This deferral had an estimated revenue cost of $40 million.
On 28 November 2016, the Treasurer announced a revised Working
Holiday Maker Reform Package, under which working holiday makers
would be taxed at 15 per cent from their first dollar of income, with the
following financial impact, relative to the 2015-16 Budget measure.
This measure is estimated to result in a reduction in revenue of $420
million over the forward estimates period.
Underlying cash balance ($m) 2016-17 2017-18 2018-19 2019-20
Lower tax rate for all working
-35 -105 -140 -140
holiday makers
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Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016
Human rights implications: The Income Tax Rates Amendment
(Working Holiday Maker Reform) Bill 2016 does not raise any human
rights issues. See Statements of Compatibility with Human Rights --
paragraphs 1.15 to 1.18.
Compliance cost impact: Low.
2
Chapter 1
Income tax treatment of working holiday
makers
Outline of chapter
1.1 The Income Tax Rates Amendment (Working Holiday Maker
Reform) Bill 2016 applies a 15 per cent income tax rate to working
holiday maker taxable income (that is assessable income derived from
Australian sources by working holiday makers less relevant deductions)
on amounts up to $37,000, with ordinary tax rates for taxable income
exceeding this amount.
Context of amendments
1.2 Working holiday makers are an important source of Australia's
international tourism and a key source of seasonal labour in regional
areas, particularly in the agriculture, horticulture, tourism and hospitality
sectors. The reforms recognise the important contribution of working
holiday makers to the Australian economy. The reforms seek to increase
Australia's attractiveness as a destination of choice for working holiday
makers, whilst ensuring that they pay tax at a fair rate on their earnings in
Australia.
Income tax rates applying to working holiday makers
1.3 Currently, working holiday makers who satisfy the tax residency
criteria receive the benefit of the $18,200 tax-free threshold. In contrast,
working holiday makers that are non-residents for tax purposes are taxed
at 32.5 per cent from their first dollar of income. The non-resident income
tax rates that currently apply to the taxable income of working holiday
makers are:
Table 1.1: non-resident income tax rates
Taxable income Tax rate
less than $87,000 32.5 per cent
exceeds $87,000 but does not exceed $180,000 37 per cent
exceeds $180,000* 45 per cent
* The above rates do not include the Temporary Budget Repair Levy -- for 2016-17 this levy is
payable at a rate of 2 per cent for taxable incomes over $180,000.
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Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016
Summary of new law
Tax rate changes
1.4 The Income Tax Rates Amendment (Working Holiday Maker
Reform) Bill 2016 provides for an income tax rate of 15 per cent for
taxable income up to $37,000 of working holiday makers in a year of
income. Income above this amount in a year of income is subject to
ordinary marginal income tax rates.
Comparison of key features of new law and current law
New law Current law
Income tax rates applying to working holiday makers
The rate of income tax applying to Working holiday makers self-assess
the taxable income of a working their residency status for tax
holiday maker will be: purposes. The taxable income of a
• taxable income less than $37,000 working holiday maker is subject to
-- 15 per cent; resident or non-resident rates of
income tax, depending on the facts
• taxable income exceeding and circumstances of the individual.
$37,000 but less than $87,000 --
32.5 per cent; The non-resident rates for the
2016-17 year of income are as
• taxable income exceeding follows:
$87,000 but less than $180,000 --
37 per cent; and • taxable income less than $87,000
-- 32.5 per cent;
• taxable income exceeding
$180,000 -- 45 per cent. • taxable income exceeding
$87,000 but less than $180,000 --
The above rates do not include the 37 per cent ; and
Temporary Budget Repair Levy --
for 2016-17 this levy is payable at a • taxable income exceeding
rate of 2 per cent for taxable incomes $180,000 -- 45 per cent.
over $180,000. The above rates do not include the
Temporary Budget Repair Levy --
for 2016-17 this levy is payable at a
rate of 2 per cent for taxable incomes
over $180,000.
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Income tax treatment of working holiday makers
Detailed explanation of new law
Lower working holiday maker income tax rate
1.5 The Income Tax Rates Amendment (Working Holiday Maker
Reform) Bill 2016 amends the income tax rates that apply to working
holiday maker taxable income. Working holiday maker taxable income is
assessable income derived from sources in Australia by working holiday
makers, less related deductions. [Item 2, subsection 3A(2) of the Income Tax
Rates Act 1986]
1.6 A working holiday maker is an individual holding one of the
following temporary visas:
• subclass 417 (Working Holiday) visa; or
• subclass 462 (Work and Holiday) visa.
[Items 1 and 2, subsection 3(1) and subsection 3A(1) of the Income Tax Rates Act 1986]
1.7 A working holiday maker may also be an individual who holds a
bridging visa permitting the individual to work in Australia if:
• the bridging visa was granted under the Migration Act 1958
in relation to an application for one of the visas referred to
above;
• the Immigration Minister's decision on that application is yet
to be made; and
• the most recent visa, other than a bridging visa, held by the
individual was a Subclass 417 (Working Holiday) visa or
Subclass 462 (Work and Holiday) visa.
[Items 1 and 2, subsection 3(1) and subsection 3A(1) of the Income Tax Rates Act 1986]
1.8 The amendments ensure working holiday maker taxable income
is subject to income tax at the following rates:
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Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016
Table 1.2: Income tax rates applying to working holiday taxable
income
Taxable income Tax rate
Less than $37,000 15 per cent
Exceeds $37,000 but less than $87,000 32.5 per cent
Exceeds $87,000 but does not exceed $180,000 37 per cent
Exceeds $180,000* 45 per cent
* The above rates do not include the Temporary Budget Repair Levy -- for 2016-17 this levy is
payable at a rate of 2 per cent for taxable incomes over $180,000.
[Items 2 and 7, subsections 3A(2) and Part III of Schedule 7 to the Income Tax Rates
Act 1986]
1.9 A working holiday maker's working holiday taxable income is
reduced by related deductions before applying the income tax rate. [Item 2,
subsection 3A(2) of the Income Tax Rates Act 1986]
Example 1.1: Working holiday maker taxable income
Pierre is a non-resident for income tax purposes. He is a working
holiday maker for the whole of the 2017-18 income year earning
$75,000 for the income year.
Pierre pays tax at the rate of 15 per cent for the first $37,000 and
32.5 per cent for the remaining $38,000 comprising his working
holiday taxable income which exceeds the first income tax bracket.
1.10 Working holiday makers may earn income other than
employment income whilst in Australia. These other amounts that form
part of their taxable income are taxed as working holiday maker taxable
income.
1.11 A person may be a working holiday maker for part of an income
year and, for the balance of that income year, hold a different visa that
does not qualify them as a working holiday maker. In these circumstances,
the working holiday maker rates of income tax apply only to income
derived during the period of the year of income in which the person
qualifies as a working holiday maker. For the balance of the year of
income in which they are not a working holiday maker, the person must
assess their residency status, determined on a whole of year basis
(typically as a non-resident) and the relevant rates of tax will apply.
Example 1.2: Working holiday maker taxable income and other
income
Fabio is a non-resident for income tax purposes. Fabio earns $50,000
while a working holiday maker in Australia from 1 July 2017 to
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Income tax treatment of working holiday makers
31 March 2018 and has $1,000 of deductions that relate to this income.
His working holiday taxable income is therefore $49,000. He also
earns a $39,000 salary in Australia while holding a different class of
visa from 1 April 2018 to 30 June 2018 which does not result in him
being a working holiday maker for this period.
Fabio pays tax at the rate of 15 per cent on the working holiday taxable
income from $0 to the tax threshold of $37,000 and 32.5 per cent for
the remaining $12,000 of his total of $49,000 of working holiday
taxable income.
For Fabio's taxable income of $39,000 that is not working holiday
taxable income, he pays income tax at the 32.5 per cent non-resident
rates for the first $38,000. The remaining $1,000 is taxed at 37 per
cent, as his overall income for the year is higher than $87,000 so he
moves into the next tax bracket.
1.12 The income tax rate schedules for resident and non-resident
taxpayers are also amended to ensure that:
• the working holiday maker income tax rates correctly apply
to working holiday maker taxable income; and
• working holiday maker taxable income is correctly taken into
account if an individual is assessed by the Commissioner of
Taxation where, in a year of income, they have both working
holiday maker taxable income (with rates under Part III of
Schedule 7 of the Income Tax Rates Act 1986 to apply) and
other taxable income earned in a part of the income year in
which they were not a working holiday maker (to which
either Part I for residents or Part II for non-residents would
apply).
[Items 3, 4, 5 and 6, clauses 1 and 4 of Part I and clauses 1 and 4 of Part II to Schedule
7 of the Income Tax Rates Act 1986]
Commencement, application and transitional provisions
Commencement
1.13 The provisions in the Income Tax Rates Amendment (Working
Holiday Maker Reform) Bill 2016 commence on the date of Royal Assent.
[Clause 2]
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Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016
Application
1.14 The amendments apply in relation to assessable income derived
by working holiday makers, less related income tax deductions, on or after
1 January 2017. [Item 8, Schedule 1]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016
1.15 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.16 This Bill applies a 15 per cent income tax rate to assessable
income derived by working holiday makers on amounts up to $37,000,
with ordinary income tax rates applying for income exceeding this
amount.
Human rights implications
1.17 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
1.18 This Bill is compatible with human rights as it does not raise any
human rights issues.
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