DASP to be taxed at 95% for working holiday makers

Update: the tax rate on DASPs for backpackers is likely to go to 65% from 1 July 2017, not 95%, after the Government and Greens reach a deal on the ‘backpacker tax’.

The Government has announced that Departing Australian Superannuation Payments (DASP) for working holiday makers will be taxed at 95% from 1 July 2017. Such payments are currently taxed at between 0% and 47%. This is intended to offset the Budget impact of changes to the ‘backpacker tax’.

 

The Explanatory Memorandum (EM) to the Bill says:

The increase in the departing Australia superannuation payment tax only applies to departing Australia superannuation payments made from 1 July 2017 that relate to superannuation contributions that were made when the person was a working holiday maker.

The EM also says the increase to tax rates on DASP was made so that the backpacker tax policy was “broadly budget neutral” and because it is “consistent with the
objective of superannuation, which is to support Australians in their retirement”.

Government announces upto 95% tax rate on Departing Australian Superannuation Payments (DASP)

The 2015/16 Budget included a change to the tax rates for working holiday makers:

The Government will change the tax residency rules from 1 July 2016 to treat most people who are temporarily in Australia for a working holiday as non-residents for tax purposes, regardless of how long they are here. This means they will be taxed at 32.5 per cent from their first dollar of income.

However this start date was pushed back and the Government promised a review.

On Tuesday the Treasurer announced that: “From 1 January 2017 the Government will set the tax rate applying to working holiday makers at 19 per cent on earnings up to $37,000, rather than the 32.5 per cent announced in the 2015-2[0]16 Budget, with ordinary marginal tax rates applying after that.”

However this comes with a cost to the Budget, with the increase to the DASP tax rates one of the offsets.

“The Turnbull Government’s strict budgeting rules have applied to ensure the budget impact of these changes is fully offset,” said the same statement from the Treasurer.

“The Government will increase the tax on working holiday makers’ superannuation payments when they leave Australia to 95 per cent. This is consistent with the objective of superannuation, which is to support Australians in their retirement, not to provide additional funds for working holiday makers when they leave Australia.”

Currently parts of a DASP are taxed at either 0%, 38% or 47%, depending on the breakdown of tax-free component, taxed element or untaxed element.

In a press conference the Treasurer said: “So effectively, that superannuation is paid by backpackers, when they are in Australia, will be returned to the Commonwealth at the rate of 95 per cent.”

“Remember, the superannuation guarantee is there to support Australians’ savings in their retirement, not for foreign residents, and it is important that employers can continue to operate on the same basis, whether they are employing residents or non-residents, and there has to be a parity in the wage arrangements. The award arrangements and so on, that is what sets the wage. Then, of course, there’s the SGC commitment on top of that. Now, the SCG component in the fund, that will be taxed at 95 per cent, and that will go back into general revenue, that raises $105 million over the forward estimates.”

It should be noted that this tax increase has been announced but not yet legislated.

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