Payroll matters February 2022

Higher PAYG withholding rates continue to apply to backpackers

As we recently communicated, the High Court has held that the ‘working holiday maker tax’ (also known as the ‘backpackers tax’) did not apply to a taxpayer on a working holiday visa from The United Kingdom who was also an Australian tax resident.

This was due to the application of the Double Tax Agreement between Australia and The United Kingdom.

This tax treatment will only apply where the working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.

However, the ATO has recently told employers that the higher PAYG withholding rates continue to apply to working holiday maker employees.

This is regardless of the country they are from (unless the employer receives a PAYG variation notice from the ATO).

Broadly, the working holiday maker withholding rates apply as follows:

  • If the employer is registered with the ATO as an employer of working holiday makers, they should withhold tax at the tax rate of 15% from the first dollar the working holiday maker employee earns up to $45,000. Tax rates change for amounts above $45,000.
  • If the employer is not registered with the ATO as an employer of working holiday makers, they must withhold tax at 32.5% from every dollar the working holiday maker employee earns up to $120,000. The foreign resident withholding rates must be applied to income over $120,000.

If a working holiday maker employee has had excessive amounts of PAYG withheld from their salary, they can lodge a tax return at the end of the income year to receive a tax refund (where eligible).

Single Touch Payroll exemption extended for WPN holders

The ATO has extended the Single Touch Payroll (‘STP’) reporting exemption available to entities that have a withholding payer number (‘WPN’).

As a result of this extension, certain entities that have a WPN (but not an ABN) will not be required to report under STP for the 2021-22 and 2022-23 financial years.

This continues the exemption that has been provided to relevant entities since the commencement of the 2018-19 financial year.

Any entity covered by the exemption may still choose to voluntarily report under STP.

Payment extension relating to JobKeeper objections

The JobKeeper rules have been amended to ensure the ATO can make payments to certain taxpayers after 31 March 2022.

Where a taxpayer has objected to an ATO decision relating to JobKeeper, a payment can be made by the ATO after 31 March 2022 to give effect to the objection decision and decisions of the AAT or a court.

Importantly, this extended payment date will only apply where a valid objection was given to the ATO on or before 30 November 2021.

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