Backpacker tax rate in Payroll Premier

Legacy KB ID: 5512

Question

How do I create a tax scale for the recently introduced “Backpacker Tax”or 'Working holiday Maker tax rates'?

Answer

Create a new PAYG Tax Scale with percentages for the new backpacker levels.

For employees who have already worked for you between 1/7/16 to 31/12/2016, terminate them under this employee record and create a new employee record for use from 1/1/2017. 


The Issue

In December 2016 the Australian Government finalised the re-categorisation of foreign visitors on working holiday visas (“backpackers”) for PAYG withholding purposes, from parity with “Residents” (Tax Code Tax-Free threshold Claimed) to a special category of “Non-Residents” (Tax Codes Non-Resident and Flat).

From 1 January 2017 visitors on working holiday visas will be subject to the following PAYGW scales for annual incomes of:

·         $1 – $37,000 – 15% (“backpacker tax”)

·         $37,001 +     -  32.5% (normal Non-Resident tax)

Non-Residents who do not possess a “working holiday visa” are subject to the Non-Resident tax rate for all income.


Please note that these levels are subject to change and users should consult with their Accountants on prevailing definitions of non-resident, working holiday visa, rates and thresholds. 


Reckon Payroll Premier does not have a specialised backpacker tax scale.

For employees who have already worked for you from 1/7/16 to 31/12/2016, the ATO requires you to terminate them under this employee record and create a new employee record for use from 1/1/2017.  You will issue this employee with 2 Payment Summaries for the financial year 2016/17.


Workaround

Create a 2 new PAYG Tax Scales (flat rates), one to be used for incomes less than $37,000pa and one for incomes above $37,000. 


1.    Lists > PAYG Tax Scales > Tax Scales button > New

2.    Enter the Last Update –1/1/2017;

3.    Enter a Description – eg: Working Holiday Maker 15%

4.    Enter the following in the Thresholds:

(Refer to ATO for exact levels)

                       Threshold      Multiplier        Subtract

 over 1             0.1500           0

5.    Create a second PAYG Tax Scale named – Working Holiday Maker 32.5% and enter the thresholds (Refer to ATO for exact levels)

Threshold      Multiplier        Subtract

                              over 1             0.3250           0 


Now terminate the current record of the employee after you have processed all the pays prior to 31st December 2016. 


Create a new employee record with the ‘returning to Company’ option. So that all the details remain as is except the pays detail and you do not have a duplicate record on the list.


1.    Terminate the current employee

2.    Create new employee record, by reinstating the employee.

3.    Go to employee list.

4.    Check the ‘Display terminated employee list’ box at the bottom of the list.

5.    Select the employee you just terminated, go to Wizard menu on top and click Reinstate Employee.

6.    Select the option ‘Returning to Company’ and Finish. This will ensure only the employees’ name details etc will be carried forward, and no previous pay.

7.    Go to the ‘Taxation’ tab.

8.    Select ‘Working Holiday Maker 15%’ tax scale that you created earlier under tax scale.

This will now ensure the employee will get 15% flat tax on all his pay. 


When a worker earns more than $37,000 in the financial year, the tax on additional income will be higher – 32.5%.  You will need to manually monitor the total financial year to date you have paid the employee and when this level is reached, change the Tax Scale field to Working Holiday Maker 32.5% 


Need more help?

Ask the Reckon Community at: https://community.reckon.com/reckon.


 



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