Under the responsible budget regime of the government which became law on 1 January 2017, backpackers are taxed at 15% for earnings of up to $37,000 with the balance taxed at ordinary rates. This tax rate is applicable for people who hold either a working holiday visa subclass 417 and 462.
The Tax Office considers most people on working holiday visas as foreign residents for tax purposes. Working holiday visa holders are entitled to superannuation payments by employers of at least 9.5% of their ordinary earnings. These superannuation payments can be withdrawn as a Departing Australian Superannuation Payment (DASP), which is taxed at 65% from 1 July 2017.
A Federal Court judge has held that the “backpacker tax” is invalid and is a “disguised form of discrimination based on nationality.” This is contrary to non-discrimination clauses contained in Double Taxation Agreements Australia has signed with certain countries. In addition to this, the judge cautioned that the residency of a taxpayer is determined on the facts and not to be decided on the particular class of visa the taxpayer holds. The Tax Office is considering whether to appeal the decision.