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(Australian Associated Press)
WHAT’S THE BACKPACKER TAX?
The government wants to ensure backpackers picking fruit in farms across the country are paying taxes at the rate of non-residents. It originally slated 32.5 per cent in the 2015 budget but has since changed that to 19 per cent after an 18-month-long saga and interest group pressure.
SO WHAT’S THE BIG DEAL?
Farmers were worried the 32.5 per cent rate would drive away the labour they need for harvest season. They estimated it would have cut their labour market by a quarter overnight and leave produce rotting on the ground. So the government caved in and reduced it to 19 per cent.
WHY CAN’T THEY JUST INPUT THAT RATE?
Labor doesn’t agree with the 19 per cent rate and is teaming up with Tasmanian senator Jacqui Lambie to reduce that even further to 10.5 per cent. The government isn’t copping that, so now there is uncertainty about what will happen to the draft laws.
WHAT HAPPENS IF THE BILL DOESN’T PASS?
Backpackers will be charged 32.5 per cent from the first dollar they earn if they claim to be non-residents when they fill out their tax forms. But most of them right now are self-assessing as residents, thereby paying absolutely no tax if they earn less than the tax-free threshold of $18,200.
BUT THERE’S A CATCH
From the start the problem has been backpackers claiming to be residents and minimising their tax. The government’s original budget proposal created a storm of controversy because of the 32.5 per cent rate. But it was always about compliance – ensuring that all backpackers are treated as non-residents.
WHAT WILL BACKPACKERS BE CHARGED?
There are scenarios:
1) They’ll pay 10.5 per cent if Labor’s amendments are supported in the Senate, and if at least one government MP – most likely a Nationals – in the House of Representatives crosses the floor when the amended bill returns to the lower house.
2) Labor caves in and supports 19 per cent.
3) The bill fails and the government gives up on the issue, the status quo will prevail – that is, backpackers will be able continue to self-assess as residents and pay no tax.
BUT THERE’S ANOTHER CATCH
If the bill fails the Australian Tax Office has the authority to change the rules and treat all working holiday visa makers as non-residents, therefore taxing them 32.5 per cent. But that in itself could subsequently be overturned in a court.