House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP and the Assistant Minister for Immigration and Border Protection the Hon Alex Hawke MP)

General outline and financial impact

Working holiday maker reform package

The Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016, Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016 and Passenger Movement Charge Amendment Bill 2016, (the Bills) reform tax and other arrangements for working holiday makers.

A working holiday maker is an individual who holds a Subclass 417 (Working Holiday) visa, a Subclass 462 (Work and Holiday) visa or certain related bridging visas.

The Bills:

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apply a 19 per cent income tax rate to working holiday maker taxable income (that is assessable income derived from Australian sources by working holiday makers less relevant deductions) on amounts up to $37,000, with ordinary tax rates for taxable income exceeding this amount;

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help protect working holiday makers from unfair employment arrangements by allowing the Commissioner of Taxation (Commissioner) to disclose information that is relevant to ensuring an entity's compliance with the Fair Work Act 2009 to the Fair Work Ombudsman;

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require employers of working holiday makers to register with the Commissioner, which will allow such employers to withhold tax at income tax rates applying to working holiday makers;

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require the Commissioner to give the Treasurer, for presentation to the Parliament, a report on working holiday makers, which includes statistics and information derived from the register;

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increase the rate of the departing Australia superannuation payments tax to 95 per cent for working holiday makers;

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reduce the visa application charge for Subclass 417 (Working Holiday) visas and Subclass 462 (Work and Holiday) visas from $440 to $390; and

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increase the passenger movement charge from $55 to $60.

Date of effect: The measures in these Bills generally apply from 1 January 2017. The measures to change certain visa application charges and the passenger movement charge and to increase the rate of the departing Australia superannuation payments tax generally apply from 1 July 2017.

Proposal announced: The measures in these Bills were announced by the Treasurer on 27 September 2016.

Financial impact: In the 2015-16 Budget the Government announced that from 1 July 2016, working holiday makers would be taxed at 32.5 per cent from their first dollar of income, like other non-resident taxpayers. This was estimated to increase revenue by $540 million over the then forward estimates period, to 2018-19.

On 17 May 2016 the Minister for Small Business and Assistant Treasurer announced the Government would undertake a review of the broad range of issues affecting the supply and taxation of working holiday makers. The 2015-16 Budget measure was deferred by six months, to start from 1 January 2017. This deferral had an estimated revenue cost of $40 million.

On 27 September 2016 the Treasurer announced the Government's Working Holiday Maker Reform Package, with the following financial impact:

These Bills give effect to all of the elements of the package except for items 6 and 7, which will be given effect through the next round of Appropriation Bills following Mid-Year Economic and Fiscal Outlook 2016-17. Item 3 will be progressed separately by the Department of Immigration and Border Protection.

Human rights implications: The amendments in Schedule 2 of Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016 require employers of working holiday makers to register with the Commissioner which may disincentivise the employment of working holiday makers. To that extent, the amendments engage the right to work under Article 6 of the International Covenant on Economic, Social and Cultural Rights. The amendments in Schedule 4 apply in relation to information about individuals and therefore engage the right to privacy under Article 17 of the International Covenant on Civil and Political Rights. The remaining provisions of this Bill do not engage any Human Rights. The Bill is compatible with human rights because, to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. See Statement of Compatibility with Human Rights - Chapter 2, paragraphs 2.5 to 2.22.

The Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016 and Passenger Movement Charge Amendment Bill 2016 do not raise any human rights issues. See Statements of Compatibility with Human Rights - Chapter 2, paragraphs 2.1 to 2.4 and 2.23 to 2.30.

Compliance cost impact: Low.

Summary of regulation impact statement

Regulation impact on business

Impact: This package is expected to decrease the regulatory burden by $3.6 million per year.

Main points:

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Legislative action is required to ensure that all working holiday makers are taxed on a consistent basis, at a rate that ensures Australia is an attractive destination for working holiday makers, given their role in providing seasonal labour.

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Employers and working holiday makers will need to be aware of the new withholding arrangements, and employers will need to be aware of the new registration arrangements. This is expected to be relatively straightforward.

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The measure is expected to result in a low overall compliance costing.