The Backpackers Guide to Tax and Superannuation When Starting a Working Holiday in Australia

Taxation is a necessary consideration for every backpacker who comes to Australia on a working holiday. While most backpackers will just look at the fun and excitement of their working holiday, those backpackers that take the time out to understand the Australian taxation system will be much better of financially.

Obviously backpackers can’t be expected to know everything about Australia’s taxation system, but by following this guide and obtaining specialised advice they will be able to maximise their net wages.

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It must be pointed out that this is a guide only, and backpackers on working holidays in Australia should only use it as a basic reference point. Backpackers should seek advice from a tax agent who specialises in tax matters for backpackers to ensure they receive tailored advice to meet their own individual circumstances.

Tax Basics When Commencing Employment

Every time a backpacker starts a new job their employer will give them a form known as an Employment Declaration Form. The Employment Declaration Form is filled out by both the backpacker who is starting work and their employer. The purpose of the Employment Declaration Form is to identify to the Australian Tax Office that the backpacker is commencing employment, for taxation purposes.

Under Australia’s taxation legislation, the Employment Declaration Form needs to be received by the Australian Tax Office within 28 days of the backpacker commencing employment.

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Taxation is a necessary consideration for every backpacker who comes to Australia on a working holiday. While most backpackers will just look at the fun and excitement of their working holiday, those backpackers that take the time out to understand the Australian taxation system will be much better of financially.

Obviously backpackers can’t be expected to know everything about Australia’s taxation system, but by following this guide and obtaining specialised advice they will be able to maximise their net wages.

immmmge

It must be pointed out that this is a guide only, and backpackers on working holidays in Australia should only use it as a basic reference point. Backpackers should seek advice from a tax agent who specialises in tax matters for backpackers to ensure they receive tailored advice to meet their own individual circumstances.

Tax Basics When Commencing Employment

Every time a backpacker starts a new job their employer will give them a form known as an Employment Declaration Form. The Employment Declaration Form is filled out by both the backpacker who is starting work and their employer. The purpose of the Employment Declaration Form is to identify to the Australian Tax Office that the backpacker is commencing employment, for taxation purposes.

Under Australia’s taxation legislation, the Employment Declaration Form needs to be received by the Australian Tax Office within 28 days of the backpacker commencing employment.

One of the questions on the Employment Declaration Form is of critical importance as it will determine the tax rate that will be applied to the earnings of the backpacker on a working holiday in Australia. The question is whether the backpacker is a resident or non resident for taxation purposes.

In Australia there are two separate taxation rates for residents and non-residents that are employed. Backpackers who are on a working holiday in Australia but are not considered a resident for taxation purposes are required to pax tax on every dollar they earn as they are not eligible to the Tax Free Threshold of $18,200 like those considered to be residents for tax purposes.

Employers work out how much tax a backpacker on a working holiday in Australia is required to pay by following a tax scale. There are two separate tax scales, one for residents and one for non residents. The tax scales are designed with consideration that people will be employed for 52 weeks out of each year. Backpackers on a working holiday in Australia who don’t work for a whole 52 weeks will be entitled to claim back a pro rata rate of tax paid either at the end of the financial year or when they leave Australia permanently.

Many backpackers believe that they will be entitled to claim all of the tax they have paid when they leave Australia. However, this is a fallacy and there is much confusion for backpackers on working holidays and employers alike when it comes to this matter. This is especially true for backpackers on a working holiday who are not considered to be residents.

This highlights the importance for backpackers to obtain specialised advice from a tax agent who specialises in backpackers’ tax matters as to the correct residency status they should declare on their Employment Declaration Form.

Some employers complicate the matter more for backpackers on a working holiday in Australia by wrongly believing that resident status comes down to citizenship in Australia. This belief is completely wrong; residency for taxation purposes has no correlation with citizenship.

In simple terms residency status for taxation purposes comes down to the backpacker’s intentions. If the main priority for the backpacker in Australia is to travel and just do some intermittent work while they are in Australia, they will generally be considered a non-resident. If however, the primary purpose of the backpacker is to work while they are in Australia and travel is only second purpose, then thee backpacker is likely to be considered a resident for taxation purposes. This is by no means a comprehensive definition on residency, and backpackers on a working holiday in Australia should seek advice from a tax agent for their own individual circumstances.

It is also important that backpackers during their working holiday in Australia keep employment records and also copies of receipts for expenses they have incurred during the course of their employment. These records are vitally important for backpackers when they come to do their Australian Tax Return at the end of the financial year or when they leave Australia on a permanent basis. These records are used to identify if a backpacker who has been on a working holiday in Australia has paid to much tax, and if so how much there tax refund will be.

Backpackers should give all of these records to a tax agent who will assist the backpacker in drafting their tax return. Tax agents in Australia have detailed knowledge of the tax return process and will be able to use these records and receipts to make sure that the backpacker who has been on a working holiday in Australia receives the maximum tax refund possible. It is also important that backpackers on working holidays in Australia keep their previous employers updated on their contact details so that they can send the backpacker their Pay As You Go Summary at the end of the financial year. The Pay As You Go Summary details all of the backpackers’ earnings as well as the tax they have paid and other deductions that have been taken out of their gross wage.

Superannuation Basics When Commencing Employment

Many backpackers who come to Australia on a working holiday are unfamiliar with superannuation. However, for backpackers working in Australia superannuation is like a forced savings scheme that provides them with significant financial savings when they return to their home country.

The Australian Superannuation Scheme was first implemented to reduce the financial burden of the Australian government in paying aged pensions for retired Australian workers. Superannuation is considered to be a long term investment for Australians and starts from the first day they start working as a young person and continues through until the day they retire. While superannuation was implemented for the benefit of Australian citizens, it still has financial advantages for backpackers on working holidays in Australia.

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Under Australian law, an employer is required to pay workers in Australia 9.5% of their gross earnings into a recognised superannuation fund as soon as the employee earns $450.00 or more in a month. Backpackers on working holidays in Australia are able to decide which superannuation fund that they would like their superannuation paid into. As soon as a backpacker commences employment, their employer will provide them with a form so that the backpacker can choose their preferred superannuation fund.

It is a wise decision for backpackers on working holidays in Australia to maintain only one superannuation fund. Not only does this assist the backpacker keep track of where their superannuation is for when they leave Australia but it also allows thee superannuation account to accumulate greater interest.

With so many superannuation funds available, it is recommended that backpackers seek thee advice of a superannuation specialist who has detailed knowledge of the superannuation needs of backpackers on working holidays in Australia. Superannuation specialists are also able to assist backpackers on working holidays in Australia to set up their superannuation fund and also provide advice on which investment strategy should be implemented for the superannuation account.

When backpackers who have been on a working holiday in Australia eventually leave on a permanent basis they are allowed to claim their superannuation payments. This is known as a Departing Australia Superannuation Payment or DASP for short. Even though backpackers are able to claim their superannuation entitlements when they leave Australia thousands of backpackers each year fail to do so.

Some backpackers don’t claim their superannuation entitlements because they are unaware that they can and others fail to claim because the process seems to complex. This is where it is beneficial for backpackers to seek the assistance of a superannuation specialist. The superannuation specialist will be able to assist the backpacker who has been on a working holiday in Australia through the DASP process. The superannuation specialist will also ensure that the correct documentation has been drafted and submitted as well as making sure the backpacker receives their payment as soon as possible.

There are a number of requirements that a backpacker who has been on a working holiday in Australia needs to satisfy before they can claim their superannuation entitlements. Firstly, there Working Holiday Visa needs to have expired or have been cancelled and secondly backpackers who have been on a working holiday in Australia need to have departed the country on a final basis.

Conclusion

Backpackers who come to Australia on a working holiday have a remarkable opportunity to experience Australia and also work to support the costs of their travel. While most backpackers may think that it is simply a matter of turning up to work and making money, there are a number of things that they need to take into consideration to ensure that they are financially better off than they other wise would have been.

Taxation and superannuation are two matters that backpackers on a working holiday in Australia need to take into consideration. While it is not expected that backpackers will have a detailed knowledge of taxation and superannuation they should seek the advice of reputable tax agents and superannuation specialist. By seeking this advice, backpackers who have been on a working holiday in Australia are likely to return home after their holiday finishes with considerable forced savings. These savings through the Departing Australia Superannuation Payment and also through the backpackers tax refund will make sure backpackers don’t return home penniless.

For backpackers who are in Australia on a Second Year Visa, their tax return will also provide them with finances to contribute to further travel throughout Australia in their downtime. While tax and superannuation may seem like an administrative burden thee financial benefits that they provide in the long run are well worth the effort involved. For those backpackers on working holidays in Australia who use the services of tax agents and superannuation specialists, there is little that the backpacker needs to do making the process so much easier.

A working holiday in Australia is an incredible experience for all those backpackers that take the opportunity to work and travel in Australia. By taking some time out to understand taxation and superannuation in Australia backpackers will find that they will have little financial stress and instead focus on enjoying all that Australia has to offer. From the world famous beaches to Australia’s remote outback a working holiday in Australia will provide young people an experience they are unlikely to experience ever again.

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