Farmers rely on working holiday makers (WHM) to complete seasonal work such as grain harvest and fruit picking. The tax obligations of utilising this labour source can be confusing.
Due to the transient nature of their stay in Australia, many WHM’s are nonresidents. Generally, non-residents pay tax at 32.5% from their first $1 of taxable income up to $87,000 (i.e. with no access to the tax-free threshold).
From the 1st January, 2017 the first $37,000 of income earned is to be taxed at 15%. Any income earned after $37,000 is to be taxed at the marginal tax rates for the relevant financial year. For the current financial year the ordinary marginal rates are 32.5%, 37% or 47% (45% from 1st July 2017 due to the removal of the 2% temporary budget repair levy), depending on the individual’s level of taxable income.
To employ a person as a working holiday maker, they must hold a visa subclass 417 or 462. You should request a copy of their visa and also their tax file number upon their employment.
The changes aim to avoid underpayments of tax resulting from WHM’s incorrectly identifying themselves as residents for tax purposes (e.g. on their TFN declaration) and claiming the tax-free threshold when they are not entitled to do so.
As always there are additional administrative requirements for the employer! You must:
Employers must apply to be registered by the day they are first required to withhold from a payment of salary or wages, commission, bonuses or allowances made to a WHM.
Broadly, the registration process requires the employer to make a declaration that it:
Alternatively, employers may ask prospective employees to email their visa details using this service.
The ATO has released ‘Schedule 15: Tax table for working holiday makers’ to assist registered employers in
calculating the correct amount of withholding. This table is unique in that it allows the applicable withholding rate to be determined based on the level of income already paid to the employee during the income year, prior to the current payment.
If a WHM fails to quote their TFN (and is neither exempt from doing so, nor has advised their employer that they are in the process of obtaining a TFN), the employer must withhold PAYG at 47% (or 45% from 1 July 2017) from all payments made to the WHM.
An employer who fails to register by the time they are required to withhold from a payment to a WHM will be liable to an administrative penalty of 20 penalty units, which equates to a penalty of $4,200 from 1st July 2017 (previously, $3,600 from 1st January 2017 to 30th June 2017)
An employer that does not register as a WHM employer must withhold tax at non-resident rates (ie starting at 32.5% on the first $87,000 of taxable income). While this will not impact the tax ultimately payable by a WHM (i.e. they will still be assessed at the 15% rate on their WHM income up to $37,000 on lodgement of their tax return), it will result in higher withholdings from salary wages paid to WHM’s. This is intended to act as an incentive for employers to register, as unregistered employers may find it difficult to attract WHM’s.
Payments must also have superannuation paid on them at the super guarantee rate of 9.5%. We can arrange to have the employee set up with a default superannuation fund if they haven’t already got a superannuation fund organised.
We hope you found this summary useful. If you require any further assistance please do not hesitate to contact the Mulcahy & Co Agri team.
Chris has the formal qualifications of Chartered Accountant but attributes much of his knowledge and experience to growing up on a busy farm and being part of building the Mulcahy & Co business. Chris has a passion for the agricultural industry and helping farmers take control of their farm businesses through sound financial management and deliver on Mulcahy & Co Agri Solutions core purpose – to help committed farmers achieve and maintain financial security.