WHV tax NO tax free threshold

[Juniper753]

Hi all - new to forum, signed up especially as hit a new low following the ATO's WHV tax rebate rules.

looking for people in similar situation.

As per the ato website WHV holders who have earnt $18,200 or more between Jan-Jun 2017 will get essentially NO TAX FREE THRESHOLD on any income received Jul-Dec 2016.
Say you earnt $18,200 in Jul-Dec 2016 and $18,200 in Jan-Jun 2017: this means you pay 15% on WHV income which also in turn erodes the tax free threshold on earlier income resulting in paying 19% tax on $18,200 PLUS 15% tax on $18,200.

This can’t be right surely??????

I've gone from overpaying my Jun-Dec 2016 tax by $2-3k (pro-rata threshold / previous tax rules) to not only having that eroded by income earnt in 2017 but I now owe tax apparently, even though I've been consistently paying 15% tax in 2017.

(FI I earnt approx $24k 2016 and $15k 2017 paying $7k in tax in total)

Edited July 6, 2017 by Juniper753
Clarification on tax paid

[amibovered]

1 hour ago, Juniper753 said:

Hi all - new to forum, signed up especially as hit a new low following the ATO's WHV tax rebate rules.

looking for people in similar situation.

As per the ato website WHV holders who have earnt $18,200 or more between Jan-Jun 2017 will get essentially NO TAX FREE THRESHOLD on any income received Jul-Dec 2016.
Say you earnt $18,200 in Jul-Dec 2016 and $18,200 in Jan-Jun 2017: this means you pay 15% on WHV income which also in turn erodes the tax free threshold on earlier income resulting in paying 19% tax on $18,200 PLUS 15% tax on $18,200.

This can’t be right surely??????

I've gone from overpaying my Jun-Dec 2016 tax by $2-3k (pro-rata threshold / previous tax rules) to not only having that eroded by income earnt in 2017 but I now owe tax apparently, even though I've been consistently paying 15% tax in 2017.

(FI I earnt approx $24k 2016 and $15k 2017 paying $7k in tax in total)

Isn't the 19% tax rate for residents?

http://certica.com.au/backpacker-tax-changes-working-holiday-makers/

Edited July 6, 2017 by amibovered

[Collie]

WHV holders are non-resident for tax purposes.

There is a special rate of 15% for the 1st $37k before the regular non resident rates kick in (think it's 32.5% and then 37.5%)

They used to be residents for tax purposes but this changed.  WHV holders don't have votes so that's probaby why

 

[Juniper753]

Not quite so I think - whilst they've tried to do away with WHV holders claiming they are residents so therefore took the tax free threshold away this year 2017 by taxing flat rate 15% and ordinary rates thereafter, in the period Jun-Dec 2016 it was still as per 'old rules' and the tax free threshold was in place for WHV 'residents'. For info I do class as a resident having lived and worked in one city for 12 months+, not that it affects this question but I'm also now a temporary resident via an 820 visa application put in last week.

It just so happens my WHV visa ran pretty much inline with the tax year so I had 6 months in the old rules and 6 months on the new rules.

So I guess my gripe here is, as per the ATO 'guidelines' if I'd have left the country Dec 31st 2016 I'd have gotten a $2-3k tax refund as I'd not earnt income in 2017 and would get my full tax free threshold - BUT it appears since I've continued working and paying my taxes in 2017 I actually lose out by a crazy amount even though I've been paying 15% as I should have in 2017!

So do any WHV holders out there have a similar situation here?

[Collie]

6 hours ago, Juniper753 said:

I'd have gotten a $2-3k tax refund as I'd not earnt income in 2017 and would get my full tax free threshold

Ok - so I wasn't aware that it wa a pro-rata thing over the tax year - are you sure about that?  It sounds very unusual and would be a systems and admin nightmare for the ato and companies.  I was on the ato site the other day on this issue and didn't see that mentioned anywhere.  So that is the first thing that needs double checking

Also - you need to pay (indeed overpay) tax in the first place to get a refund.  So even if the the pro-rata thing is correct, if you had no earnings between Jul & Dec 2016, you would have had no tax deducted and therefore not be due a refund.  So why do you think you are owed $2-$3k

Refunds normally occur when people put their allowable deductions.

I'm confused on the earnings and taxes on your post and dates, perhaps you can clarify and we can help you better.  There is something that you are missing (the ATO are normally on the money)

Jul - Dec you were on a WHV , yeah? earned how much ($0) and had tax deducted of how much ($0)

Jan - Jun what visa were you on?  How much did you earn? and how much tax was deducted?

 

Now - you are on an 820 and are temporary resident whcih is only relevant to the 17/18 tax year,

 

 

[Juniper753]

Thanks Collie, really appreciate your interest/help here! This is a big post, don't give up on me just yet..!

 

1. Re the pro-rata thing, the following is from the ATO website. I used their search function using 'tax free threshold':

 

If you're a resident for part of the year

Your tax-free threshold is less than $18,200 in a financial year if you:

• entered with the intention to reside in Australia during the year
• left Australia with the intention to reside overseas during the year.

If you're a non-resident you're not entitled to the tax-free threshold. This means you pay tax on every dollar of income you earn in Australia.

If you were a resident for part of the year, you have a tax-free threshold of at least $13,464. The remaining $4,736 of the full tax-free threshold is pro-rated according to the number of months you were a resident:

 

2. Absolutely I could provide my exact figures although I'm super conscious that might confuse things even more but to be honest here if I could just clarify that I'm not going mad and that I am indeed understanding the ATO's calculations correctly then that would help immensely! If we could use the following figures instead to help try and understand what I'm getting at:

 

Jul-Dec 2016 -

WHV held and qualifying resident for tax purposes

$18200 gross income

$3403 tax paid

 

Jan-Jun 2017

WHV held and qualifying resident for tax purposes

$18200 gross income

$2730 tax paid

 

3. This is the following example from the ATO for calculating how much tax I should pay for 16-17 tax year as a working holiday maker:

 

Impact on the tax free threshold

Most working holiday makers will be foreign resident taxpayers and not be eligible for the tax free threshold.

If you are a resident, you will be eligible for the tax free threshold but it will be impacted by any working holiday maker income you earn. Any working holiday maker income is dealt with first and effectively reduces your tax free threshold.

Example 6

Ian is a working holiday maker and his circumstances allowed him to claim residency for the whole 2017 year which entitles him to a tax free threshold of $18,200. 

Ian earned $15,000 for the period 1 July 2016 – 31 December 2016 and $5,000 for the period 1 January 2017 – 30 June 2017.

Ian will be taxed at 15% on the $5,000 earned as a working holiday maker. The first $5,000 of the tax free threshold is then used by the working holiday maker income leaving $13,200 of the tax free threshold. The tax free threshold applies to the $13,200 of ordinary income and this is taxed at 0%. The remaining $1,800 of the ordinary income is taxed at 19%.

 

4. So based on the above ATO example:

 

Jan-Jun 2017 income of $18,200 taxed at 15% = $2,730

The first, and thus whole, $18,200 of tax free threshold is 'used up' by the working holiday maker income leaving $0 of the tax free threshold for income made in 2016.

Therefore;

Jul-Dec 2016 income of $18,200 taxed at 19% = $3,458

 

Total tax payable $2,730 + $3,458 = $6,188

Total tax paid $6133

Total therefore now OWING $55

 

5. Going back to my gripe - as per following the ATO's example (point 3 above) the way I see is it if say I'd earned $0 income instead in 2017 then there would be no income to erode and 'use up' the tax free threshold of income earned in 2016. If this was the case I would be owed a tax refund as per a pro-rata tax free threshold (point 1 above) for income earned in that 2016:

 

$13,464 base + $2,368 (Jul-Dec 16 month pro rata) =

$15,832 pro rata tax free threshold 2016

$18,200 - $15,832 =

$2,368 taxable income 2016 taxed at 19% =

$449.92 tax payable so with $3403 paid =

$2593.08 tax refund

 

So all in all having followed the ATO's calculations, even though I've paid 15% tax as required on income received in 2017 I'm also then additionally taxed 19% on income received in 2016 even though apparently I was eligible for a tax free threshold for that period. When I thought I was still getting a refund for 2016, unbeknownst to me that refund was essentially being eroded purely by income I earned in 2017 even though my tax payable for Jan-Jul 2017 was correct at 15% and I was paying more than enough tax for Jun-Dec 2016.

 

I hope all that makes sense it's quite a bit to get your head around.

Surely I am missing something major here as surely other people will be in the same boat as me..?

Why does the working holiday maker income earned in 2017 reduce the tax free threshold of 2016??? The more you earn in 2017, the more you pay 15% tax on obviously but the more 2016 income you result in paying 19% / 32.5% etc tax too!

[Juniper753]

Just now, Juniper753 said:

The remaining $4,736 of the full tax-free threshold is pro-rated according to the number of months you were a resident:

Formatting didn't show the calculation so here it is:

$13,464 + ($4,736 x number of months as resident / 12 months)