Smashing urban myths for backpackers seeking refund
THERE are a number of urban myths that exist within the backpacking community in Australia when it comes to taxation, and in particular tax refunds.
The most common of these is backpackers are entitled to a full refund of their tax paid at the end of the year.
Alas, the real world is not such a kind and giving place.
The first thing backpackers and temporary workers need to ascertain is whether they are Australian residents for tax purposes.
This test of residency is different from tests applied by other agencies such as the Immigration Department and is not determined by a person’s nationality.
If a person is classified as an Australian resident, they are subject to an initial tax-free amount of income, followed by graduated tax scales ranging from 15-45 per cent, depending upon the amount of income earned, whilst non-residents do not enjoy any tax-free income, and are taxed at rates beginning at 29 per cent.
There are a number of tests for residency which are applied by the tax office and these can be generally summarized using the following scenarios: 1) If you are an overseas student enrolled in a course at an Australian institution that is more than six months long, then you are generally classified as a resident. 2) If you are visiting Australia for more than six months and for most of that time work in the one job and live at the same place, then you are generally classified as a resident. 3) If you are holidaying in Australia or are visiting for less than six months then you are generally classified as a non-resident. Accordingly, a “backpacker” who travels around Australia, and supplements their travel costs with short-term employment will be generally classified as a non-resident, and therefore subject to tax at 29 per cent, with little prospect of a tax refund.
Conversely, a person on a working holiday visa who works long-term for one or two employers during the year, while maintaining a place of accommodation during that time will be classified as a resident, and likely receive a tax refund.
The silver lining for non-resident backpackers is that they are able to access their superannuation monies paid by their employers once they leave Australia and their travel visa has expired or been cancelled.
For more information visit your local tax professional.