Backpacker tax rate in RAB

Legacy KB ID: 5510

Question

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

Answer

Set the Employee Tax Details to Tax Code 8-No TaxC and the Tax% field to 15%.

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 2-TFT) to a special category of “Non Residents” (Tax Codes 3NonRes and 8-No TaxC).

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 Accounts does not have a specialised backpacker tax code.

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

Tax settings are configured in the Employee Record: 

1.    Employee Centre > right click Employee > Edit employee

2.    Change tabs to Payroll and Compensation Info

3.    Taxes button


Where employee is earning a total of less than $37,000 per annum:

1.    For the Tax field, select 8-No TaxC

2.    In the Tax% field, enter 15%

3.    Click OK


When a worker earns more than $37,000 in the financial year, the tax on additional income will increase to – 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% field to 32.5%. 

 

To terminate an employee under the current employee record:

1.    Complete the last pay for calendar 2016;

2.    In the Employee Centre, right click the employee and select Terminate Employee

3.    Enter the following Details:

a.    Termination Type:  Involuntary

b.    Termination Reason:  Other

c.    Last Day worked:  31/12/2016

d.    Release Date:  31/12/2016

4.    Click Next

5.    For Additional Details:

a.    Recommend Re-hire: Yes

b.    Redundancy Paid:  No

c.    Redundancy Description:  Leave blank

d.    Notes:  Legislative requirement - re-categorisation of foreign visitors on working holiday visas (“backpackers tax”)

e.    Click Next

6.    For Confirmation: click Finish.

7.    If you have more backpacker employees, click on Terminate another employee and repeat these steps.  Otherwise, click on Close.

8.    In the Employee list, right click the old entry and select Make Employee Inactive 


Create a new employee record for this employee

1.    In the Employee Centre, click on New Employee button

2.    Select No to “Would you like assistance adding this employee to Reckon Accounts”

3.    Enter the Name slightly differently – eg If the original Name was Theis B Larsen enter it as – Theis B Larsen, or Theis B. Larsen

4.    Re-enter other details. 


Need more help?

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

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