17th November 2016

The government has rejected a joint proposal in the Senate to lower the ‘backpacker tax’ from the government’s favoured 19% rate to a recommendation of 10.5%.  Jacqui Lambie, an Independent Senator of Tasmania, proposed the drop as opposition parties, including Labour, Greens, and One Nation, came together on the issue. 

A backpacker tax affects those on a working holiday visa issued by the government, allowing them to live, work, and travel throughout Australia. Many of these backpackers end up working on farms or plantations picking fruit or doing other odd jobs. To qualify, applicants must be under the age of 31 and hold a passport from one of the 19 eligible countries.

The amendment was rebuffed on Thursday before the bill was sent to the House to have the measure removed as the government has enough seats to kill it.  The rejection signifies a return to a rate of 32.5% on the first day of 2017 unless the opposition can revise their proposal to a compromise the government would accept. The Senate will convene next week to consider legislation. It will be the final sitting week for the federal parliament of the year. 

Prime Minister Malcolm Turnbull stated that if the backpacker tax reverted back to 32.5% that the Labour party would be to blame.  When asked why the government did not accept the Senate’s suggested tax rate, Treasurer Scott Morrison said that the opposition was proposing a lower tax rate for foreigners working in Australia. Morrison said the opposition’s cuts to the backpacker tax would cost Australian tax payers upwards of $500 million.

Just before the crucial Senate vote Thursday afternoon, the Turnbull government attempted to convince One Nation Senators to drop out of the opposition’s coalition and accept the government's 19% proposed tax rate. In return, Turnbull’s government would restore volunteer programs allowing vacationers to work on farms in stints in return for room and board. 

A spokesman for One Nation said they were only interested in the right outcome for farmers, but if the 10.5% tax rate did not pass, they would have accepted a higher rate between 12% and 15% which would fall in line with promises made to their constituents.

From 2014-15 Australia granted nearly 227,000 working holiday visas with the United Kingdom, Taiwan, Germany, and South Korea being the top recipient nations. According to AusVeg, a vegetable grower organisation, backpackers make up nearly 40,000 of the 75,000 workers in the horticulture industry making them a substantial part of the workforce. 

The government has received heightened criticism from politicians, farmers, tourism operators, and grower associations who depend of foreigners to meet their manpower demands each harvest in regard to the looming 32.5% tax rate. They claim that the higher tax rate will see Australia lose its status as a work holiday capital as travelers look for a more temperate tax climate elsewhere. In years past, backpackers had not paid any tax on their income which could approach 20,000 Australian dollars which is the maximum a holiday worker would make.




         Chartered Accountants

Tax Institure