The backpacker tax in Australia: what it is and how it has changed

What is the current backpacker tax rate?

For working holiday visa holders (subclass 417 and 462):

• 15% on the first $45,000 of income
• 30% on income from $45,001 to $135,000
• 37% on income from $135,001 to $190,000
• 45% on income above $190,000

In practice, the vast majority of working holiday makers earn below $45,000 in a single financial year, so the 15% rate is the one that applies to most.

There is no tax-free threshold for working holiday makers. The 15% rate applies from the very first dollar earned.

What was the situation before 2017?

Before 1 January 2017, the tax treatment of working holiday makers depended on residency:

• Tax resident: standard progressive rates ($18,200 tax-free, then 19%, 32.5%, etc.)
• Non-resident: 32.5% from the first dollar of income

Many working holiday makers qualified as tax residents under the standard rules (extended stays, established residence patterns), which meant they paid little tax on lower incomes. The government considered this an unintended outcome and proposed reform.

How did the 2017 changes happen?

In 2016, the government proposed a flat 32.5% tax on all working holiday maker income from the first dollar, treating all backpackers as non-residents regardless of their actual circumstances.

The proposal triggered massive industry backlash:

• Agricultural sector relies heavily on working holiday labour during harvest
• Farming groups warned of devastating impact on regional economies
• Tourism industry was concerned about deterring backpackers
• Working holiday maker numbers had already been falling

After extensive lobbying, the government compromised on a flat 15% rate effective 1 January 2017. The compromise also included:

• 65% DASP withholding tax on super for working holiday makers (up from 35%)
• The lower 35% DASP rate retained for student visa holders
• Specific provisions for treating working holiday maker income separately from residency rules

What was the UK legal challenge in 2019?

In 2019, the backpacker tax faced a significant legal challenge:

• UK citizens on working holiday visas argued the rate was discriminatory
• The argument: applying a higher rate to British citizens than to comparable Australian residents violated the UK-Australia tax treaty
• The Full Federal Court of Australia ruled in favour of the UK claimants

This was a major decision because:

• It established that treaty non-discrimination protections applied to working holiday makers
• It raised questions about other treaty countries (Germany, Sweden, etc.)
• It forced the Australian government to reconsider the tax framework

The Australian government subsequently amended the legislation to address the court's ruling, and the current regime was put in place with specific provisions intended to comply with treaty obligations.

What rate applies today?

The current 15% rate applies to working holiday makers regardless of passport nationality in most cases. Some specific nuances apply for certain treaty countries, but the rate is generally consistent:

• 15% applies from the first dollar of working holiday maker income
• No tax-free threshold
• Higher rates apply above $45,000 in line with the foreign resident scale
• Both subclass 417 and 462 visas are treated the same

What does this mean for your tax return?

At year-end, when your employer's PAYG withholding at 15% is reconciled against your actual tax owed:

• Most working holiday makers receive a small refund (deductions and offsets reduce final liability)
• Some receive a larger refund (periods without TFN, wrong rate applied, etc.)
• Few owe additional tax (mainly if tax-free threshold was wrongly claimed)

The average tax refund for working holiday makers we lodge for is around $1,000 to $3,000. The exact amount depends on income, deductions, and individual circumstances.

What about super withdrawal tax?

The 2017 changes also affected super withdrawal:

• DASP rate for working holiday makers increased to 65% of the taxable component
• This was retained even after the UK legal challenge
• Most working holiday makers we help still consider DASP worthwhile because the net amount is meaningful

See our article on tax on super withdrawal for more.

How does our team help with backpacker tax?

When you lodge through our service:

• We apply the 15% rate correctly to your income
• We identify all eligible deductions and offsets
• We claim the Medicare Levy exemption if applicable
• We handle any complications from periods with the wrong rate applied

Get in touch with our team to lodge your return correctly under the current backpacker tax regime.