Question:
How do I create a tax scale for the recently introduced “Backpacker Tax”?
Solution:
Set the Employee Tax Scale to Voluntary/Flat Rate and enter the rate of 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 Scale 2-TFT) to a special category of “Non Residents” (Tax Scale 3 – Foreign Resident).
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 Foreign Resident tax)
Non-Residents who do not possess a “working holiday visa” are subject to the Foreign 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 One does not have a specialised backpacker tax code.
Workaround
Tax settings are configured in the Employee Record:
Payroll > Employees > click on Employee > Tax tab
Where employee is earning a total of less than $37,000 per annum:
1. For the Tax Scale, select Voluntary/Flat rate
2. In the rate field that opens, enter 15%
3. Save and Close
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 Scale field, select Scale 3 Foreign Resident
2. For the Tax Offset field, enter the pay cycle equivalent of $5,550.00:
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.
