Working holidaymakers will no longer enjoy tax-free allowance.
Holidaymakers who work in Australia on holiday visas will now face higher taxes.
In his Budget speech, Treasurer Joe Hockey announced that visitors to Australia working on holiday visas will no longer be able to enjoy the standard tax-free income allowance of A$18,200.
This is bad news for foreign backpackers, who have traditionally found casual work in industries such as hospitality to help fund their travels.
Taxed from the first dollar
In his speech, Mr Hockey announced that “anyone on a working holiday in Australia will have to pay tax from their first dollar earned, rather than enjoying a tax‑free threshold of nearly $20,000”.
He said that this would save the Budget A$540 million over four years, mentioning that Australia wanted everyone to pay their fair share along the way.
In Australia, earnings between $A18,201 to A$37,000, are taxed at 19%. However, a rate of 32.5% will now be levied against non-resident taxpayers on their first A$80,000 of income.
What constitutes a ‘non-resident’ for tax purposes is a little complicated as it stands, but the Australian Government said that it will change the tax residency rules to treat ‘most’ working holiday makers as non-residents.
[SPOTLIGHT]This means that a backpacker who earned A$10,000 over the course of a year abroad may not have previously piqued the interest of the taxman, but would now pay A$3,250 in tax and end up with just A$6,750 to spend.
Compare travel insurance quotes
Extra visa expenses
In its response to the Budget, the Tourism and Transport Forum of Australia noted that the charges for visa applications is increasing for working holiday makers from A$420 to A$440, which it said would raise $437.1 million over four years.
The industry body said it was "disappointed" that the Government hadn’t set aside money to increase spending on tourism marketing along with the changes, and isn’t pleased with the new tax arrangement either.
Chief Executive Officer Margy Osmond said: “Ripping more than half a billion dollars from the visitor economy with a new ‘backpacker tax’ is simply ridiculous. Taxing working holiday makers from the first dollar they earn… is a backward step and will damage Australia’s international reputation.”
However, Backpacker Operators’ Association New South Wales Secretary Robert Henke has pointed out that people could only benefit from the tax-free threshold if they stayed in the same place for six months. Since many backpackers choose to move around to see more of the country, they would not have benefitted from the tax-free allowance anyway.
“We don’t think the tax change will raise as much money as Mr Hockey claims,” Mr Henke told the BBC.
Compare travel insurance quotes
More from loveMONEY:
UK prices hit deflation in April