The end of the Australian tax year is here, and backpackers everywhere are panicking. Facebook groups are exploding with questions: how do I claim my tax back? How much will I get? Do I have to do a tax return if X, Y or Z?
Well, first of all, let’s not panic. It might be a bit complicated, but it’s definitely something you can handle.
Yes, you do have to do it if you’re on a working holiday (sorry guys). But, you CAN do it yourself (boring though it may be), and you don’t have to pay anyone. Plus the whole thing is online so you don’t have to worry about flapping about with bits of paper.
Tax returns for the 2016/17 financial year are a bit more complex than usual, owing to changes to backpacker tax, but it is still definitely feasible to fill out your own return.
I’ve written a pain-free, practical, step-by-step guide (with a bit of help from the lovely people at Taxably) to explain how it all works. I go through everything pretty slowly, so if you already get the basic concepts, or don’t care about the details, feel free to skip ahead to the instructions!
If you do want to go through a tax agent, I would highly recommend Taxably. Their fully qualified tax agents charge a flat rate of $110 (no hidden extras!), and as a company they have been very helpful in giving free advice to many backpackers, particularly through the backpacker Facebook group Australia Backpackers. You may end up receiving more tax back if you use their services than if you lodge yourself – but of course there is no guarantee!
This guide covers:
A basic explanation of the Australian tax system
The changes to tax for backpackers since 1st January (and what this means)
What you will need to fill in your tax return
How to fill in your tax return
The Australian Tax System
In order to work in Australia, you need to have a Tax File Number (TFN). This enables the government to identify you and figure out what your tax status is. Backpackers should apply for their TFN within their first two weeks of arriving into the country. If you don’t supply your TFN within 28 days of starting a new job, you’ll be taxed at 47% (eek!).
You can read more about how to set yourself up when you arrive in my comprehensive guide to the Australian Working Holiday Visa
The Australian tax year runs from 1st July to 30th June each year. Tax returns lodged by individuals have to be filed any time from 1st July to 31st October, for the previous year. If you do not fill in a tax return, penalties can apply (so you might as well just get it over and done with).
The long and short of it is that backpackers are almost always not considered residents for tax purposes. Though most of us will spend a year or more living and working here, this actually doesn’t matter. Owing to the nomadic nature of most working holidays, this isn’t the same as moving here for good. If you go to the Australian Tax Office (ATO) website, this is explained in more detail, but if you can’t be bothered then just take my word for it. Before the changes to tax, backpackers could sometimes claim residency if they were staying in one place for six months, but since the changes pretty much all working holiday makers are treated as foreign residents.
Australians get a tax free threshold. This means that they do not pay tax on the first $18,200 of their income. They are then taxed 19% on anything over that, up to $37,000 (i.e. they pay 19% of their wages to the government, which is deducted straight out of their wages).
However, we (working holiday makers – those on the 417 and 462 visas) get taxed differently. The system changed on 1st January 2017, and this is the real pain in the arse for doing your tax return this year. Sorry guys, the government sucks.
Below, I’ll explain a bit more what has changed and how it affects us.
Changes to the Backpacker Tax
Changes to the Working Holiday Visa started being rolled in on the 1st January. This has meant changes to the price and assessment of visas, the taxation of Superannuation upon leaving the country, and also – you guessed it – changes to the tax system.
Essentially, the previous system sometimes allowed working holiday makers to claim residency. This meant many backpackers were able to claim the tax-free threshold from their employment, and could therefore claim a lot of tax back when doing their tax return. For example, if you were initially taxed at the foreign resident rate of 32.5%, you could basically claim all of this money back up to the first $18,200 of your wage (see above).
(By the way, this is not how it was supposed to work, and this is part of the reason why the system was changed. Foreign residents are supposed to get hella taxed (32.5%), but people were sneaking round this by claiming residency).
However, from 1 January 2017, backpackers as a group have been taxed at a flat rate of 15% up to the first $37 000, making the whole thing a lot easier (and more profitable) for the government. And unfortunately a lot less lucrative for us. But at least your tax will be easy to work out now!
Every cloud, eh?
Companies must now also register as employers of working holiday makers, and if they aren’t registered you will be taxed the foreign resident rate of 32.5% up to $37 000 of income (yikes!)
This page on the ATO website is pretty useful if you want to know more about how the changeover affects the actual figures for your tax, if you’re interested. If you’re totally uninterested, that’s cool too – you can still fill in your tax return correctly and the government will figure it all out for you!
The changes to the tax system have mainly affected how we are able to claim tax back. And it’s not in a particularly straightforward way, either. Put in as simple terms as possible, this is how it works, assuming you were considered an Australian resident for tax purposes before 1st January, and a foreign resident after:
The tax-free threshold is $18 200 for Australian residents. Many backpackers will be considered Australian residents for tax purposes before 1st January.
However, the income they earned after 1st January is treated first, and the tax-free threshold is eaten into by this income. The remainder of the threshold – if any is left – is then used to treat the income earned before the changes.
Because backpackers are only able to claim residency for half the year, the tax-free threshold is reduced to $15 832.
So, let’s say you earned $10 000 after 1 January and $10 000 before. The $10 000 you earned after 1 January will have been taxed at 15% in accordance with the new rules. Despite the fact that this money has been taxed, your tax-free threshold will still be reduced by $10 000.
Now $15 832 – $10 000 = $5 832.
So $5 832 of the tax-free threshold remains. Therefore, of the $10,000 earned before 1 January, only $5 832 will be tax free. But, if you were taxed on this $5 832, you will still be able to claim this tax back.
Complicated, right? And that’s even with an overly simplified example. If it doesn’t make sense to you, it doesn’t really matter – you can still fill in your tax return, so don’t worry!
The main thing to take away from the changes is that unfortunately, the vast majority of people will not properly be able to claim Australian residency for tax purposes. The ATO have been hugely cracking down on people falsely claiming residency this year – so bear in mind that your tax return may get audited (checked), and you could end up having to pay your tax-back back!
I’ll cover the changes made to the process of claiming superannuation back in a separate post.
Bored of reading about tax returns? Read my guide on road trips in Australia instead!
Filling in your Tax Return
Okay, so hopefully you now understand the system a bit better.
(Even if you don’t, you can still follow the steps below to lodge your tax return yourself!)
Let me just point out again that you do have the option of paying a tax agent to do your tax return for you, if you are worried about doing it yourself, or if your circumstances are more complicated than average. This made a lot more financial sense when backpackers were able to claim a lot back, but might still be worth it for peace of mind – and because of the complexities of the tax situation this year. If you do want to go down this route, as I’ve said above, I’d check out a service like Taxably. As mentioned above, they have been super helpful to heaps of backpackers – and not just those who are lodging their tax returns through them!
But anyway, if you’re still keen to sort things yourself, then read on!
Before you start, I would advise you to have the following things easily available to you:
For creating your myTax account:
- your Tax File Number (TFN)
- your passport
- the address you gave for where your TFN should be sent
- your phone!
For lodging your tax return:
- final pay slips or payment summaries from all the jobs you worked in the year, or the following information:
- ABN numbers of the businesses you worked for
- Gross income from each job
- Tax deducted from each job
- details or receipts for any expenses you incurred through work
- details of any accounts where you have earned interest
Having all this before you start makes it a lot easier, so you can sit down and do the thing in one go!
Now that you’ve compiled all this information, let’s lodge a tax return!
First, you need to set up a myGov account if you haven’t already, or link myTax to your myGov account if you have. In order to do that, complete the following steps:
- Go to mygov.com.au to create myGov account. You need this account in order to do your tax return through myTax. It’s really easy to set up: just follow the five simple steps on the website.
- Log in and click ‘link a service’ and then ‘Australian Taxation Office’.
- Fill in the information requested, agree to the terms and conditions, and submit.
Note: you may need to then ring the ATO to confirm your identity if they have ‘insufficient information’ to establish your identity – I had to do this. Their number is 13 28 61. Opening hours are 8am-8pm Mon-Fri, 10am-4pm Saturdays.
- Once you have linked your myGov account to the ATO, follow the link to go to your myTax account.
Now you can start processing your tax return.
At the top of the screen, there should be a banner saying ‘For Action’. Underneath will be the details for the current tax year, and a link on the right hand side which says ‘Lodge’ (shown in the screenshot below). Click this link.
The first page will prompt you to confirm or update your contact details. Assuming they are the same, click next in the bottom right hand corner. If your address has changed, it might be worth updating this in case you need anything to be sent to you.
Financial Institution Details
The second page asks you about your ‘financial institution details’. This is just your bank information. Fill in your account name, number and BSB (you should know these – if not, check your bank statement or your mobile banking app and they should be on there). Then click ‘Next’.
This is the beginning of the complicated bit: now you need to personalise your tax return.
First of all, you need to answer the big question: were you an Australian resident for tax purposes during this tax year? This will affect your tax quite a bit, so if you want to read more on this then click here to read about it on the ATO website. In the interests of clarity, I’ll try to summarise it here.
Basically, it is to do with your intentions and behaviour whilst you are in Australia. If your behaviour is consistent with someone who is settled in Australia (i.e. usually in one place), then you can be a resident for tax purposes. This can also be true if you have moved around a bit, but have intentions to stay in Australia – or, no intention of going back home. However, if you are just treating your time in Australia as a holiday, and intend to eventually return home or travel elsewhere, then you will not be considered a resident for tax purposes.
Due to the changes discussed above, it is possible to have been considered a resident up from 1st July – 31st December 2016, and then no longer a resident for the period 1st January – 30th June 2017. If this applies to you, you should select ‘No’ but then enter in the box below the dates for which you were considered a resident.
After you have answered the residency question, you will then select whether or not you had a spouse for this financial year (that one should be easy, I hope). Then scroll down, and you will be confronted with a whole load of statements, like this:
Some of these may have been pre-filled, depending on what information the ATO already has from you.
Read through all the statements carefully, and check the boxes that apply to you.
The average working holiday maker will tick the following boxes:
You received salary, wages or other income
You had deductions you wanted to claim
Then, if you are claiming residency for the first half of the year:
You are claiming tax offsets, adjustments or a credit for early payment
and beneath that,
Working holiday maker net income
Obviously this will not cover everyone in every situation, but at the basic level that is what will be relevant to you if you have worked.
You might think that the statement about income from superannuation might apply to you, but in almost all cases it will not. The contributions that employers make to super aren’t counted as income until you actually receive that money. For backpackers, this will be when you leave the country for good.
The deductions you may want to claim from work can be for a range of different things. For example, if you had to buy certain clothes or equipment in order to do your job. This can be a compulsory uniform for a bar job, or a set of PPE for work in construction. You can also claim back for laundry expenses.
You may need to have written proof of these purchases in order to make the deductions, however.
Whatever amount you successfully claim will be deducted from your gross income, and your tax adjusted accordingly.
For more information on this, have a read through the deductions page of the ATO website.
Now click Next.
On this final page, you will be entering all of the information which you ticked as relevant to you on the previous page.
So, if you have worked and received wages or a salary, you will need to input this income and the tax you paid into the ‘payment summaries’ section. All of the necessary information will be in your final pay slips or payment summaries. (Look for the heading Year to Date or YTD to find this if it’s not obvious).
FYI: gross income = total income, before deductions and tax
Net income = total received after tax. Net income is what you were actually paid.
Taxable income = gross income minus deductions
(This is why I suggested having all your payment summaries ready before you start. I had six separate jobs and this was a real pain in the arse).
You do not need to input your employer’s super contributions into this form. The ‘reportable employer super contributions’ that are mentioned in box X are not referring to the compulsory super contributions. This is referring to any extra contributions that may have been made, usually at the employee’s request. It is very unlikely that any extra money will have been paid into your super account, above the compulsory amount. You can read more about this on the ATO website.
After this, you will fill in the relevant information about any deductions you want to claim, or any interest earned.
Next is the ‘Adjustments’ section. Here you will separately input income that you earned after the changes to backpacker tax, i.e. after 1st January 2017. Assuming you haven’t received any government benefits, you will also find out here how many months of the year you can claim the tax-free threshold for, if applicable.
The next section is income tests. This will have likely been pre-filled for you. Read over the information, and if it is all correct then move on to the next step.
Finally, there is the Medicare and private health insurance section.
The main thing that we need to worry about is that the majority of backpackers are usually exempt from paying the Medicare levy. This is either simply because we are counted as foreign residents or because we are not entitled to Medicare. If there is reciprocal health care agreement between your country and Australia then your exemption would be category 2; if not then it would be category 3.
The Medicare levy is just an extra tax that Australian residents pay to contribute towards their healthcare system. However, obviously if you are claiming residency for some of the year, you will still be liable for the levy if your income is over a certain threshold.
The Medicare levy is phased in from a taxable income of $21 355 (if you are a resident). If you earned over this amount during this financial year, you may need to contribute. If you earn over $26 668 you will need to pay 2% of income to the Medicare levy, and if you earn less than this (but still over $21 355) then the levy is a bit less.
Anyway, the actual calculation doesn’t actually matter when filling in your tax return. All you need to do is work out how many days you were exempt for (i.e the number of days you were not an Australian resident). Then, you just enter that number into the ‘Full 2% levy exemption – Number of days’ box. You can use a days calculator for this – the ATO provides one which you can find here.
Pro tip: the period from 1 January – 30 June is 181 days.
If you have a Medicare card, and are therefore entitled to Medicare through a reciprocal healthcare agreement, you should then click ‘yes’ to the next question. Otherwise, click ‘no’. You can read more about reciprocal health care in my guide to the working holiday visa.
Now save and continue.
- Once you have finished all the above sections, you just need to answer one final question. This is about whether you will be lodging tax returns in the future. If you’re thinking of doing a second year, the answer to this will likely be yes!
- Click ‘Calculate’ and wait for the magic number. This is just an estimate for the actual figure you will get back (or have to pay) – but you will have to wait around two weeks for the tax return to be processed.
Click ‘Lodge’ and submit your form – YOU’RE DONE!
If you have made any mistakes while filling out your tax return, don’t panic: you can still amend it. You just have to log back into your myTax account, go to Tax > Income Tax > View or amend returns. Amendments will only be processed after your initial lodgement has been processed, however. So just try to get it right first time!
Now, go look at some cute puppy videos or something, to calm your frazzled nerves after that feat of concentration. Well done, you made it.
I really hope this guide has been in some way useful to you! Please feel free to share it around if you’ve found it helpful, and leave any questions in the comments below.
Want more info on living and working in Australia?
Take advantage of my 50 Budget Tips for Backpacking Australia
Find out more about getting your second year visa in my complete guide