Backpackers will have their superannuation taxed at 95% if they receive a Departing Australia Superannuation Payment (DASP), from 1 July 2017.
The Australian Parliament has passed the Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016, which increases the tax rate on DASPs for backpackers to 95% from 1 July 2017. The Bill says the 95% tax rate applies to DASPs that are “paid to a person on or after 1 July 2017” and “includes amounts attributable to superannuation contributions made while the person was a working holiday maker”. This is on top of the 15% contributions tax on Superannuation Guarantee contributions.
“Working holiday makers can access the balance of their superannuation after they leave Australia and their visa expires or is cancelled. These funds, which are accessed after the working holiday maker has left Australia, are typically spent offshore,” Treasurer Scott Morrison told the House of Representatives.
“This bill, together with the bill that increases the passenger movement charge by $5, will fully offset the government’s working holiday maker reform package and ensure the budget is no worse off,” he said.
“The superannuation arrangements that were put in place to support Australians provide for their retirement income were not put in place to provide for the retirement incomes of visitors to Australia. As a result, this is an entirely appropriate measure and ensures that employers of working holiday makers will be paying the same rates of pay to those that they would provide to an Australian.”
This tax increase was part of the Government’s proposed changes to the so called ‘backpacker tax’. The future of the Bill changing the income tax rate for backpackers, the Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016, is unclear after it was amended in the Senate to reduce the proposed tax rate on the income of working holiday makers up to $37,000 from 19% to 10.5%. However the Bill now returns to the House of Representatives, and the Government appears unlikely to support the amendment.
If backpackers don’t claim their superannuation via a DASP it will eventually be transferred to the ATO, where it only accrues interest at the rate of CPI.
Note: the 95% tax rate applies to the taxable and untaxed elements of the superannuation balance, a 0% tax rate remains for the tax-free component. Though, the superannuation balance for backpackers who have accrued their super from employer contributions is likely to be made up of a taxable element. Under the previous rules the taxable element of a DASP was taxed at 38%.