Higher PAYG withholding rates continue to apply to backpackers

As we recently communicated, the High Court has held that the ‘working holiday maker tax’ (also known as the ‘backpackers tax’) did not apply to a taxpayer on a working holiday visa from the United Kingdom who was also an Australian tax resident.

This was due to the application of the Double Tax Agreement between Australia and the United Kingdom.

This tax treatment will only apply where the working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.

However, the ATO has recently told employers that the higher PAYG withholding rates continue to apply to working holiday maker employees.

This is regardless of the country they are from (unless the employer receives an PAYG variation notice from the ATO).

Broadly, the working holiday maker withholding rates apply as follows:

• If the employer is registered with the ATO as an employer of working holiday makers, they should withhold tax at the tax rate of 15% from the first dollar the working holiday maker employee earns up to $45,000.

Tax rates change for amounts above $45,000.

• If the employer is not registered with the ATO as an employer of working holiday makers, they must withhold tax at 32.5% from every dollar the working holiday maker employee earns up to $120,000.

The foreign resident withholding rates must be applied to income over $120,000.

If a working holiday maker employee has had excessive amounts of PAYG withheld from their salary, they can lodge a tax return at the end of the income year to receive a tax refund (where eligible).