Tax for travellers working in Australia

If you’re working in Australia, you will have to pay tax on your income there.

In most cases a traveller on a Working Holiday visa is treated as a non-resident, which means that you will be taxed at a higher rate than an Australian resident and have to pay tax on every dollar you earn (as opposed to Australian residents who are entitled to a $18,200 tax-free threshold). However as a non-resident you don’t pay the Medicare levy, which is usually an additional 2%.

As a non-resident you will be taxed at a rate of 32.5% on the first $80,000 you earn, with the tax rate rising to a maximum of 45% once you earn over $180,000.

From 1 January the tax rate for backpackers (known as the Backpacker Tax as it specifically applies to travellers on visa classes 417 and 462) will drop to 15% for the first $37,000, then 32.5% ($37,001–87,000), then 37% ($87,001–180,000) and up to 45% (over $180,000).

Being classed as a non-resident for tax purposes basically means that you pay a lot more tax than a permanent Australian resident, however it does have one advantage: you are only taxed on income earned in Australia where a permanent resident is taxed on their worldwide income. Essentially this means that if you come to Australia on a Working Holiday visa but also do some work on a freelance basis for companies outside Australia then that income is tax exempt (and you would only pay tax on what you earn in Australia). Unfortunately the average backpacker is generally not in the position to take advantage of this unless they have already set up a client base or made a deal with a former employer back home.

Even though most travellers on a Working Holiday visa are taxed as non-residents there are some cases where you may be classed as a resident, which can save you thousands of dollars a year in tax. If you think your travel and work patterns in Australia allow you to be classed as a resident then it is a good idea to see a good tax accountant when you need to submit your tax return.

In some cases if you spend most of your time in one location and establish ties with Australia (such as renting a flat and having your name on the lease, getting an Australian drivers licence and joining local clubs and generally living a lifestyle that is closer to a regular Australian resident rather than a traveller), then you may be able to be taxed as a resident. Being classed as a resident by the Australian Taxation Office can mean that you pay around half as much tax as a non-resident.

Unfortunately from 2017, the Backpacker Tax means that anyone on a Working Holiday (visa class 417) or Work and Holiday visa (class 462) will automatically be taxed as a non-resident without the opportunity to be classed as an Australian resident for tax purposes.

Residents don’t pay tax on the first $18,200 they earn and they only pay 19% on what they earn between $18,201 and $37,000. This means that if you earn $37,000 in one year you would pay $12,025 tax if you are classed as a non-resident ($5,550 from 2017) but only $3,572 if you are classed as a resident. See the Australian Taxation Office (ATO) website for more information about what is required to be taxed as a resident.

You will need to get a Tax File Number to avoid paying a higher tax rate than you need to. You’ll need to quote this number when applying for work to have the correct level of tax deducted from your wages, but you will be taxed at 45% if you fail to provide a Tax File Number when starting a new job. If you have a Working Holiday Visa and an Australian address you can apply for a Tax File Number at a post office or online at the Australian Taxation Office’s website.

At the end of the Australian tax year (30 June) and before you return home, you will need to complete a tax return. In Australia this is considerably more complex than in the UK and many travellers get an accountant or tax agent to do this for them. An accountant will charge for this service, but they are familiar with Australian tax law and will often be able to get you a better refund than you could get yourself.

Some tax agents, such as Taxback, specialise in preparing tax returns for travellers on Working Holiday visas and may be more familiar with the unique requirements of those who are non-resident for taxation purposes.

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