TAX and lodging a tax return for Backpackers and working holiday makers

Australian Tax System and Tax Refund

Australia operates under a tax system of Pay-As-You-Go. This means that instead of paying one lump sum of tax at the end, the employer constantly withholds appropriate amount of tax from your wages. The payslip provided by your employer usually provides detail of amount of wages paid and amount of tax withheld. At the end of financial year (30th of June), you have to submit a tax return to the Australian Taxation Office (ATO). This allows ATO to calculate whether you have paid enough taxes on the wages you earned. If you have paid less than you should, you get a tax bill. If you have paid more taxes than you should, you get a tax refund.

What this means to Working holiday makers and similar people on low income?

Not everybody pays the same amount of tax. The tax payable differs depending upon whether you are a resident or a non-resident for tax purposes. This is different to permanent residency under immigration law. Many working holiday makers and students have been deemed to be a resident for tax purposes. There are various criteria for working out if you are resident or not. You can use the residency calculator at ATO’s website or talk about your situation with a tax agent. Usually you will be classified as a resident if you have stayed more than 6 months in Australia in one location and established a living pattern.

For example, if you earned $10,000 during one financial year, you would pay $600 in tax if you are resident or $2900 in tax if you are non resident. As you can see, there is a significant difference.

According to our experiences, most working holiday makers are residents for tax purposes. Also, Australian taxation system has many incentives for low income earners, especially for people earning under $30,000. Therefore, many working holiday maker and students often end up with a significant amount of tax refund.

Can I get all the tax back?

There is a perception amongst working holiday makers that you can receive all the tax back if you lodge your tax return. Although it is true that many working holiday makers receive large amount of refund, it is not true that all working holiday makers receive all the tax back. The amount of tax refund that you receive depends upon various factors including:
- total amount of your income
- total amount of tax withheld by your employer
- Duration of your stay in Australia in a financial year
- Whether you have any allowable deductions e.g. work related expenses

For example, a person who has stayed in Australia for 12months in a financial year (1 July 2009 to 30 June 2010) and has earned $15,000 and paid $2,000 in tax will receive a full refund of $2,000 once the person lodges the tax return. However, a person who has stayed in Australia for 12monts in a financial year and has earned $18,000 and paid $2,000 in tax will only receive a refund of $1550.

Do I have to lodge a tax return?

Under Australian law, you must lodge a tax return of you earned over $6000 in one financial year or your employer has withheld any tax from you wages (even if you earned less than $6,000). Apart from the legal requirement, it is usually advantageous for an employee to lodge a tax return. From our experiences, more than 98% of people who lodged their tax return were entitled to a tax refund. Some people think that lodging a tax return is difficult or complicated. However, there are many tax professionals out there who can assist in the preparation of your tax return. The only documents that are usually required are:
- payment summaries
- your tax file number, and
- a form of identification.

What is payment summary?

Payment summary is a statement from the employer outlining the full amount of wages you earned and the amount of tax paid in a financial year. This document is quite essential in lodging your tax return. Employers are legally required to give the payment summary to you within 2 weeks after the end of financial year (by 14th of July) or within 4 weeks since you leave the company. Payment summary must be obtained from each employer you have worked for in that financial year. If you do not have a payment summary you might have to provide other documents like final payslip and statutory declaration

Who can assist me in lodging my tax return?

Although it is legal to lodge your own tax return, many working holiday makers find this difficult due to difficult tax terms and issues e.g. am I a resident or non resident. A registered tax agent, like Koroz Tax Professional, can assist people in lodging their tax return to ensure that the tax return is correct and that the clients get the right amount of refund. If you require assistance or have any queries please contact us at anytime.