Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)General outline and financial impact
Income tax treatment of working holiday makers
The Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016 applies a 15 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.
Date of effect: The amendments apply from 1 January 2017.
Proposal announced: On 27 September 2016 the Treasurer announced the Government's Working Holiday Maker Reform Package, which included amendments to apply a rate of 19 per cent tax for all working holdiday makers. The amendment to apply a rate of 15 per cent was announced by the Treasurer on 28 November 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 28 November 2016, the Treasurer announced a revised Working Holiday Maker Reform Package, under which working holiday makers would be taxed at 15 per cent from their first dollar of income, with the following financial impact, relative to the 2015-16 Budget measure.
This measure is estimated to result in a reduction in revenue of $420 million over the forward estimates period.
| Underlying cash balance ($m) | 2016-17 | 2017-18 | 2018-19 | 2019-20 |
| Lower tax rate for all working holiday makers | -35 | -105 | -140 | -140 |
Human rights implications: The Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016 does not raise any human rights issues. See Statements of Compatibility with Human Rights -paragraphs 1.15 to 1.18.
Compliance cost impact: Low.