Simplifying Tax
Resources
Here are some helpful resources and frequently asked questions, that might give you the answer you’re looking for.
Frequently Asked Questions
What is a resident for tax purposes?
In Australia, tax residency isn’t the same as visa status or citizenship. The Australian Taxation Office (ATO) uses a few key tests to determine whether you’re a resident for tax purposes, including:
- Resides test – Do you live and work in Australia with an intention to stay?
- 183-day test – Have you been in Australia for more than half of the income year?
- Domicile test – Is your permanent home in Australia?
- Superannuation test – Only applies to certain government employees.
Working Holiday Makers & Tax Residency
Most working holiday makers are considered non-residents for tax purposes, regardless of how long they stay, and are taxed at 15% from the first dollar of income up to $45,000.
However, if you are a citizen of a country that has a non-discrimination article (NDA) in its Double Tax Agreement (DTA) with Australia, you may be entitled to be taxed as a resident under treaty rules – if you meet the usual residency tests.
This could mean access to the tax-free threshold and resident tax rates. It’s a complex area, so we recommend speaking to a registered tax agent (like us!) if you think this might apply to you.
NDA Countries (as of March 2024)
If you’re a citizen of one of the following countries, you may fall under the non-
discrimination article of the DTA:
- Chile
- Finland
- Germany
- Israel
- Japan
- Norway
- Turkey
- United Kingdom
Learn more here:
ATO – Residency for tax purposes
ATO – Working holiday makers and tax
Are payment plans an option for tax debts?
Yes! If you owe money to the ATO, payment plans are absolutely an option. The ATO allows individuals and businesses to set up payment arrangements to pay off debts over time.
You can:
- Set up a payment plan online via your MyGov or ATO Online Services account.
- Use the ATO’s Payment Plan Estimator to work out what your repayments might look like.
- Contact the ATO or your tax agent to help negotiate a tailored arrangement.
Keep in mind that interest may apply to outstanding amounts, and sticking to the agreed schedule is essential to avoid penalties.
Do I need a Medicare Entitlement Statement (MES)?
You might need a Medicare Entitlement Statement (MES) when lodging your tax return if you’re not eligible for Medicare.
Situations where a MES might be needed:
- An Australian permanent resident and lived outside Australia for 12 months or more.
- A temporary visa holder and haven’t applied for permanent residence.
- A temporary visa holder, and you weren’t eligible for Medicare under a Reciprocal Health Care Agreement.
- A New Zealand citizen who spent less than 6 months in Australia within a 12 month period.
You’ll need to have the MES letter when lodging your return to claim the Medicare Levy exemption.
Apply for a MES here.
Why might a working holiday maker have a tax debt?
Working holiday makers (WHMs) in Australia can sometimes find themselves with a tax debt due to several factors:
- Incorrect Tax Withholding: Employers may not withhold the correct amount of tax from your earnings. For example, if your employer isn’t registered as a working holiday maker employer with the Australian Taxation Office (ATO), this may lead to insufficient tax (or too much tax!) being withheld.
- Claiming the Tax-Free Threshold: As a WHM, you’re generally taxed at 15% from the first dollar earned up to $45,000, with no access to the tax-free threshold available to Australian residents. If you mistakenly claim this threshold, it can result in an underpayment of tax.
- Multiple Employers: Working for multiple employers simultaneously can complicate tax withholding, especially if each employer isn’t aware of your total income. This often leads to insufficient tax being withheld from your salary.
Example: Ann is on a WHV, she has 3 employers and earns $20,000 with each employer. As her earnings are under $45,000 with each employer, they each tax her 15%. However, Ann has earned total income of $60,000 in the tax year and only paid 15% tax. Her tax rate should have increased when her income surpassed $45,000. She will have a tax debt at the end of the year.
Tips to Avoid Tax Debt:
- Verify Employer Registration: Ensure your employer is registered with the ATO as a working holiday maker employer.
- Accurate Tax File Number (TFN) Declaration: Complete your Withholding Declaration form correctly, indicating that you’re a ‘Working Holiday Maker’.
- Avoid Claiming the Tax-Free Threshold: As a WHM, you shouldn’t claim this threshold.
- Keep Track of your Income: If you have multiple employers, keep a log of your year-to-date income and when you have earned $45,000 in total, notify your employers to increase your tax rate (you will likely need to complete a new Withholding Declaration form).
- Maintain Accurate Records: Keep detailed records of any side hustle / ABN income and any deductions you plan to claim.
- Seek Professional Advice: If you’re uncertain about your tax obligations, consult a registered tax agent to ensure compliance and avoid unexpected debts.
What happens if I change visas during the year?
If you change visas during the financial year, it can affect your tax residency status – and that may lead to a tax debt if not managed properly.
For example, if you start the year on a working holiday visa and later move to a sponsored visa, student visa, or another visa that allows you to become a resident for tax purposes, your income for the year will be taxed differently across the two periods.
Here’s how it works:
Income earned while on a working holiday visa is generally taxed at working holiday visa tax rates, i.e. 15% from the first dollar, up to $45,000. Once your visa changes and you become a resident for tax purposes, you’re entitled to be taxed at resident rates.
But here’s the catch:
If your employer changes you to being a tax resident, the payroll system will likely calculate an average tax rate based on your annual salary. Depending on how much income you earned in the tax year while on a working holiday visa, this tax rate may be too low. Also, if you claim the tax-free threshold, you could end up underpaying tax – and that could result in a tax bill when you lodge your return.
What you should do if your visa changes:
- Let your employer know about the change (Even if they sponsored you!).
- Submit a new Withholding Tax form.
- Request a PAYG upward variation if the tax being withheld after your visa change is too low.
Getting it right means less chance of a surprise tax debt when you lodge your return!