Impasse threatens backpackers on working holiday in Australia

There is threat that foreign working holiday visitors in Australia will be hit with a tax of 32.5 cents in every dollar that they earn from 1 January, 2017, if the federal government can’t resolve argument with the opposition parties that has created an impasse in the passing of new law.

This has been a topic of much debate over the last 18 months.  Farmers as well as operators in the tourism industry became extremely alarmed when it was first suggested that the government would tax working holiday visitors at 32.5%.  The farmers worried that they wouldn’t get the workers to help with the harvest season and there was fear that crops would be left rotting on the ground because there would be much less incentive, in fact detriment, for working holiday visitors to take farm work as an option during their stay in Australia.

Hearing of the potential damage to the farming and tourism industries, the government conceded by accepting to reduce the proposed tax rate to 19 cents in every dollar earned.

However, the opposition parties (Labor, the Greens, and One Nation) are arguing for a further reduction, seeking to set the tax at 10.5%.  The governing party has opposed such reduction.  The debate has now become highly political with the governing party accusing the opposition Labor Party, who is traditionally the supporter of workers, of turning its back on Australian workers and giving priority to visitors from overseas.  The debate about the backpacker tax has become a “hot topic” blending with the current political theme of national interest versus interests of overseas nationals (something like the argument that has propelled Donald Trump to the Presidency of the USA).

Agricultural Minister Barnaby Joyce has dubbed it the “Lambie-Shorten-One Nation pact” and says Labor is trying to create political chaos by not revealing how it would offset the $500 million cost of the 10.5% rate compared with 32.5%.  Mr Joyce has also hit back at Labor saying, “Isn’t this the party that’s supposed to represent Australian workers? Now, just for today, they represent the workers of Umbria, of Provence, of South Suffix and of Baviria.  How does that fly with the AWU?”

The current impasse has 3 possible outcomes:

  • The ruling government party will broker a deal with the opposition parties to set the tax for working holiday visitors at 10.5%.
  • The opposition parties, particularly the Labor Party will back down and accept the tax at the rate of 19%.
  • Nil agreement will mean that the status quo prevails.

Generally, backpackers are self-assessing as residents, thereby paying absolutely no tax if they earn less than AUD $18,200.00 within the financial year.  However, there is a concern with this scenario that the Australian Tax Office may step in to change the rules and will treat all working holiday visitors as non-residents and will therefore tax the money that they earn by working in Australia at 32.5%.

We will continue to closely monitor the developments in the Parliament in Canberra, and report with up-dates.