A CAVAN couple who are returning to Ireland permanently after six years in Australia say they could lose more than half their superannuation because of a “ridiculous” new tax rule aimed at backpackers.
The rule, which came into force in July, states that working holiday makers will lose a whopping 65 per cent in tax when they claim back their super after leaving Australia permanently.
Working holidaymakers who later switched to a different visa (like the 457 sponsorship visa) will also have to pay 65 per cent tax on any super account that contains contributions made when they were backpackers. Chloe and Glen Gargan were on working holiday visas for two years, followed by sponsorship visas for another four years. They both had just one super fund set up before their sponsorship came through.
If they had kept the super earned while they were sponsored in a separate account, it would be taxed at much lower rates.
“I was utterly distraught when I heard about this,” Mrs Gargan said. “I’d have contributed very little to my super while I was on a working holiday. The bulk of my contributions are from my four years in a permanent job.”
The graphic designer estimates the new rule could cost she and her husband more than $17,000 in additional tax.
“This is our money, which we are entitled to,” she said.
“I think that if you are on a temporary visa and are not a permanent resident you really shouldn’t be paying super at all as you are not planning to retire in Australia.”
The couple has been advised by a tax agent to try to put their sponsorship super into separate funds before leaving Australia, but Mrs Gargan said “there is no guarantee that will work”.
Justin Batticciotto of ShineWing Australia accountancy firm said they knew of a number of temporary residents who had been “caught off guard” by the changes. Many of these were on 457 visas but had originally arrived on a working holiday visa,” he said.
He advised people to seek professional advice “ideally before their departure from Australia”.
The superannuation rule is part of a package of tough backpacker tax changes introduced by the Australian government.
Backpackers can no longer claim a tax-free threshold and must pay tax from the first dollar they earn.
Mrs Gargan said the measures would deter backpackers from coming to Australia. There have also been fears they will encourage people to work off the books.
“In the long run Australia will not benefit from this as tourism will decrease and there will be no one to do their farm jobs,” she said.
An ATO spokesman said it had widely advertised all the backpacker tax changes before they became law, including running a social media campaign and contacting individuals who had already started applications.
The new rules apply to Departing Australia Superannuation Payments (DASPs) for working holiday makers. Since July 2017, working holiday makers (WHMs) who claim their DASPs after leaving Australia have to pay 65 per cent in tax.
For people who came to Australia as working holiday makers but who later switched to a different visa, such as the 457, the tax rate that will be applied will depend on whether the DASP includes contributions made while they held the working holiday visa. If it does, the 65 per cent tax rate will apply to the entire amount.
If no super contributions were made while the applicant held a WHM visa, the DASP is taxed at the ordinary tax rates (35 per cent and 45 per cent)
The DASP tax rate will be determined by each superannuation fund individually, using visa information.
To get advice on your own circumstances you need to contact the ATO or a tax professional.