Question:
How do I create a tax scale for the recently introduced “Backpacker Tax”?
Solution:
Set the Employee Tax Details to Tax Code 8-No TaxC and the Tax% field to 15%.
The Issue
In December 2016 the Australian Government finalised the re-categorisation of foreign visitors on working holiday visas (“backpackers”) for PAYG withholding purposes, from parity with “Residents” (Tax Code 2-TFT) to a special category of “Non Residents” (Tax Codes 3NonRes and 8-No TaxC).
From 1 January 2017 visitors on working holiday visas will be subject to the following PAYGW scales for annual incomes of:
· $1 – $37,000 – 15% (“backpacker tax”)
· $37,001 + – 32.5% (normal Non-Resident tax)
Non-Residents who do not possess a “working holiday visa” are subject to the Non-Resident tax rate for all income.
Please note that these levels are subject to change and users should consult with their Accountants on prevailing definitions of non-resident, working holiday visa, rates and thresholds.
Reckon Accounts does not have a specialised backpacker tax code.
Workaround
Tax settings are configured in the Employee Record:
1. Employee Centre > right click Employee > Edit employee
2. Change tabs to Payroll and Compensation Info
3. Taxes button
Where employee is earning a total of less than $37,000 per annum:
1. For the Tax field, select 8-No TaxC
2. In the Tax% field, enter 15%
3. Click OK
If a worker is to earn more than $37,000, the tax on additional income will be higher – 32.5%.
You can handle this change by using the Tax Rebate field, however you will need to calculate the correct amount according to your pay frequency.
At 15%, $5,550.00 tax is paid on $37,000:
· On a Weekly pay basis this equates to $106.73
· On a Fortnightly pay basis this equates to $213.46
· On a Monthly pay basis this equates to $462.50
Please check with your Accountant for the correct equivalents for your pay cycle and circumstances.
Tax settings can now be configured as:
1. For the Tax field, select 3-NonRes
2. For the Tax Rebate field enter the pay cycle equivalent of $5,550.00:
a. eg: for weekly pays, enter 106.73
Ensure you terminate the employee at 31st December 2016 and create a new employee from the 1st of January 2017 with the new tax scale.
