Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016
I strongly object to increasing the tax on backpackers claiming a Departing Australia Superannuation Payment (DASP) to, in many cases, 95%. The Government should not seek to tax superannuation at such an excessive rate as an alternative to taxing other income, seemingly in the hopes that backpackers will not notice or care. Taxes should, where possible, be imposed in a clear and efficient manner.
The Explanatory Materials (EM) to the Bills say:
Increasing the rate of tax on departing Australia superannuation payments for working holiday makers is consistent with the objective of superannuation which is to support Australians in their retirement.
If this is the case, why is Superannuation Guarantee required to be paid for backpackers, only to be taxed at an extremely high rate? The EM indicates that increasing the tax rates on DASPs is estimated to raise $105 million over the forward estimates. I note that without this measure the Working Holiday Maker Reform Package would have an overall cost to the Budget.
I question how the rate of 95% arrived at, and the purpose of setting the rate at this level. If it is meant to collect revenue, why not set the rate at 100%? Perhaps the purpose is to discourage people from claiming a DASP and retain it as unclaimed superannuation with the ATO, which only accrues interest at the rate of CPI? I note that, according to the most recent figures, the ATO already held $585 million in unclaimed superannuation relating to temporary residents at the end of 2015/16.
The system proposed in the Bill is wasteful for employers and provides little benefit to backpackers. As structured, employers are required to assess backpackers eligibility for Superannuation Guarantee (SG), remit SG owing to the superannuation fund, which has to create and administer the account, the superannuation will then likely be transferred to the ATO when the backpacker leaves the country. Some will claim DASPs and some will decide it isn’t worthwhile and not claim their superannuation.
If the purpose is to raise revenue wouldn’t a simpler alternative be to require employers to pay 95% of the equivalent of the SG owing to a backpacker in tax and pay the 5% remaining directly to the backpacker as wages? I expect folding this into the withholding regime would be simpler then the current plan to use the existing superannuation framework. Another alternative would be to have employers pay the equivalent of SG as wages, and reflect the true level of tax the Government wishes to impose in a clear manner.
The EM says, based on consultations about the tax rates applying to Working Holiday Makers (WHMs):
General consensus among stakeholders was that WHMs should not be paid superannuation if they have no intention to use it for its intended purpose to fund retirement savings. Some stakeholders indicated that refunding superannuation contributions to Government could be an alternative to raising the tax. However, a high proportion of WHMs surveyed thought they should have access to their superannuation when they depart Australia.
Taxing DASPs at 95% is a disingenuous way of making it appear that WHMs are receiving, and have access to, their superannuation and paying a lower rate of tax than was originally proposed in the 2015/16 Budget. I also take issue with the suggestion that WHMs should not receive superannuation. The SG is not paid by the Government, but is an employee entitlement paid by employers. Indeed, when the SG was introduced it was in place of wage increases. Simply exempting WHMs from the SG altogether creates issues of entitlements between different classes of employees and may be detrimental to the SG and superannuation system in the long term.
This is a submission to the Senate Working Holiday Maker Reform package consultation process by SolePurposeTest writer Luke Smith, it has been published here with permission, he retains all copyright.