Accountant tax question re backpacker earnings.

[handyandy]

A question for the accountants One of my sons friends is a backpacker. This backpacker is about to do his first tax return.

The problem is that he earned $17,000 of which $2284 tax was withheld.
He arrived in Aust 24/1/2014. Thus up to the 30/6/2014 he was in Aust for 157 days.

He was asking me whether he would receive a refund.

When checking the ATO web site it indicates that you are considered a resident for tax purposes if present in Aust for 184 days.

The converse is that you are considered a foreign individual for tax purposes.

He will be leaving Aust in Jan 2015. Returning back to Germany

So would he be regarded as an Aust resident for tax purposes even though he was only in Aust for those 157 dyas rather than the required 183 days?

Cheers

 

[Paul@PFI]

He is a non-resident for tax purposes. His intention (and Visa) don't indicate he is here permanently ( for at least a while). He has no tax free threshold and so will have to lodge a return.

The ATO has TWO residency calculator tools on its website. Using the arriving one...

http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=resident.xr4&go=ok

Q1.No.
Q2 No
Q3. Yes
Q4 - Assume travel
Q5 - Holidays
Q6 Assume a variety of paid accom
Q7 No
Q8 o/seas
Q9 No
Q10 No

If he departs without lodging a tax return there is unlikely to be any departure issue. If he lodged a return and doesn't pay the tax owing the immigration people may query him on a future return. If he doesn't lodge they wont.

 

[Rob G.]

Two issues:

1) Your son could be a resident under ordinary principles if he stayed with family or in the one place throughout his stay that is centred around his family/friends/employment.

The 183 day test is but one test that is irrelevant if he is a resident under ordinary principles.

2) It appears from the amount withheld above that he told his employer(s) that he is a resident claiming the tax free threshold.

If he lodges a non-resident tax return he should end up owing about $3421 in additional tax since he is not entitled to the tax free threshold.

Non-residents do not get the tax free threshold and their marginal rate kicks in a 32.5%.

If your son was a resident, then he may be assessed on any foreign source income derived during that period.


All this is based upon supposition due to the lack of facts. You need advice that the ATO website is unable to give.

 

[Paul@PFI]

Rob is correct on that dominant location issue. I assume in my use of the calculator that he wasn't in one location and your sons friend was a "backpacker".

 

[Rob G.]

You are corerct Paul, the post does indeed refer to his son's friend.

However, the staying in one place behaving like a resident as opposed to behaving like an itinerant backpacker might indicate residency.

If a non-resident, there does not appear to be sufficient tax withheld from the numbers given.

 

[handyandy]

Seems that you can get 2 different outcomes from the ATO questionaire simply by altering the answer to

Have you stayed or intend to stay in a particular place continuously for six months or more?
If answered yes than you are a resident for tax purposes.

If no then you are Foreign.

By the way he has no assets apart from what he is carrying and as such I answered that he had all assets in Aust.

Cheers

 

[Paul@PFI]

That's not the only question...

I like the one for departing Australians...Are you migrating ?...Most people say ?es"...migrate doesn't mean go o/seas for a while. It has a visa / resident test hidden in the fine print hidden behind the questionmark. So a person going to UK for three years may still be a tax resident unless they have a visa which grants perm residency in UK. A temp visa may fail. A working visa may fail.

These tools are only as good as the quality of the answer to the questions. I'm afraid many people go residency shopping and look for the right response that gives them the least tax....The ATO do change residency if they suspect its wrong !! They have access to DFAT passenger cards etc.

I often ask clients for their passport to check what Visa they arrived on. its duration etc.

I wonder ...How a boatie would fare with tax residency if the Govt doesn't want them and there is no visa....They want to be perm but nobody else does.

 

[handyandy]

I will have to find out exactly what his visa is. He told me he has a working holiday visa.

Cheers

 

[Rob G.]

Visa

Citizenship

Whilst it might be relevant, it is not persuasive evidence of residency.

However, a short term visit exhibiting transient behaviour and the maintenance of a usual place of abode overseas is more likely to be a non-resident. Check out TR 98/17 for a good read.

If a non-resident, the employers seem to have been told otherwise and withheld insufficient tax.

On the upside, the departing non-resident may apply for a refund of their superannuation so it may cancel out.

All the more reason to get specific advice.

 

[pinkboy]

Visa

Citizenship

Whilst it might be relevant, it is not persuasive evidence of residency.

However, a short term visit exhibiting transient behaviour and the maintenance of a usual place of abode overseas is more likely to be a non-resident. Check out TR 98/17 for a good read.

If a non-resident, the employers seem to have been told otherwise and withheld insufficient tax.

On the upside, the departing non-resident may apply for a refund of their superannuation so it may cancel out.

All the more reason to get specific advice.

Any implications for the employer for not withholding the right amount? Even though the employee fills out the form, is the onus on the employer to check and know what visa requires what treatment?

pinkboy

 

[pinkboy]

Visa

Citizenship

Whilst it might be relevant, it is not persuasive evidence of residency.

However, a short term visit exhibiting transient behaviour and the maintenance of a usual place of abode overseas is more likely to be a non-resident. Check out TR 98/17 for a good read.

If a non-resident, the employers seem to have been told otherwise and withheld insufficient tax.

On the upside, the departing non-resident may apply for a refund of their superannuation so it may cancel out.

All the more reason to get specific advice.

Any implications for the employer for not withholding the right amount? Even though the employee fills out the form, is the onus on the employer to check and know what visa requires what treatment?

pinkboy

 

[Rob G.]

Where the employer reasonably believes that the information is correct then usually no penalties.

However, if the employer is aware the new employee is a backpacker who is not settling down (e.g. verbally told or else routinely casually employs backpackers) then this may be different. To 'not ask any questions' in this situation would be lacking in reasonable care because they would be on notice.

Failure to withhold can result in a penalty equal to the amount not withheld, amongst other things.