Backpacker Tax, How does it impact you?

By Tim Bartlett
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The Australian Government has passed legislation to alter the way Working Holiday Makers (WHMs) will be taxed. As discussed in our previous blog, Changes to Working Holiday Makers Tax Rate, employers must withhold PAYG Withholding Tax on wages paid to WHMs at a new rate of 15%, up to $37,000 and then at the normal marginal rates for individuals thereafter.


What are Working Holiday Makers?

Working Holiday Markers are people who are non-residents for income tax purposes, working in Australian on either 417 (Working Holiday) or 462 (Work and Holiday) visas.

Industries that commonly have WHMs as employees include hospitality, retail and farming.

Do the changes impact your business?

If you employ anyone that is working in Australia under either of the above visas, you must register as an employer of WHMs with the ATO.

What do you have to do?

As mentioned above, you are required to register with the ATO as an employer of WHMs. Click here to go to the registration form.

The registration form is simple to complete and requires your business’ ABN, business name and contact details for the person completing the registration form. This notifies the ATO that there is a variation to your PAYG Withholding obligations.

If you fail to register, you must withhold PAYG at a higher starting rate of 32.5% up to $37,000 of income. You may also be penalised by the ATO by failing to register.

Note: Where you have WHMs prior to 31 December 2016 and they continue to work with you from 1 January 2017 onwards, you will be required to prepare two payment summaries for them – one from 1 July 2016 through 31 December 2016 and one from 1 January 2017 through 30 June 2017.

Will it impact your accounting system?

You may also be required to make some changes to your accounting package to ensure that the system is calculating PAYG Withholding correctly for WHMs.

If you use Xero in your business as your accounting package, you will need to complete the following steps:

  1. Identify which employees are WHMs;
  2. Note down the leave balances of each WHM employee;
  3. Set the end date on each WHM employee’s Employee Record as 31 December 2016 (this is the same process as you would if you were terminating an employee without a payout);
  4. Add each employee back to Xero Payroll, commencing on 1 January 2017;
  5. For each WHM employee, go to the taxes tab and:
    1. Untick the Australian Resident for Tax Purposes box;
    2. Tick the Has Approved Withholding Variation box;
    3. Key in the Approved Withholding Variation Percentage (e.g. 15.00%);
  6. Save changes made to the Tax Tab;
  7. Go to the Leave tab, select each applicable leave type, and key in the Opening Balance (this will be the balance noted down in step 2 above); And
  8. Click Save.

If you use MYOB in your business as your accounting package, please refer to their website for the required steps for your particular package.

Will this impact your non WHM employees?

In Short, no. Normal, resident workers will remain on their usual marginal tax rates.


If you have any queries regarding these changes, the above process, or would like any assistance with ensuring your employees are set up correctly, please do not hesitate to contact our office and one of our advisers would be delighted to assist you.

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Topics: ATO Updates

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