Working Holiday Makers in Australia to be Taxed as Foreign Residents

Jane Cooper 20 May, 2015

In the 2015 Federal Budget the Australian Government has announced its intention to make changes to the taxation of individuals with subclass 417 working holiday maker visas who receive income in Australia from the 1st of July, 2016.

At present, those who are in Australia with working holiday visas can be treated as tax residents of Australia if they meet the usual tax residence requirements: the Australian Taxation Office will accept that a working holiday maker who remains in the same location in Australia for longer than six months is a tax resident.

This allows the working holiday maker to access the tax free threshold, with income under $37,000 taxed at the lower income rate of 19%.

The changes announced in the 2015 Federal Budget seek to remove the ability for people who are temporarily in Australia on a working holiday visa to be classified as Australian tax residents, irrespective of their circumstances.

This will mean that working holiday visa holders will be taxed as foreign residents, and as a result the first dollar of income arising in Australia will be taxed at 32.5%.

The changes are significant: a non resident individual earning A$40,000 in the current tax year would be liable for A$4,547 in personal income tax, leaving an after-tax income of A$35,453.

Following the proposed change this individual would be liable for A$13,000 in personal income tax, leaving an after tax income of A$27,000.

A number of concerns have been expressed, and it remains to be seen whether this change will eventually be enacted.