Backpacker tax back-flip good call says tax expert

A DECISION to postpone the introduction of a backpacker tax was one of the best political backflips the Turnbull Government could make, according to UNSW tax expert and Associate Professor Dale Boccabella.

Before the Federal Budget, plans were underway to apply a 32.5% tax on every dollar working holidaymakers made from July.

Now the change has been pushed back by six months amid warnings would-be working backpackers would shun Australia as a travel destination.

"It would have been painful not only for farmers who depend on the relatively cheap source of labour provided by backpackers, especially in the crucial harvest season, but would have also dented our reputation as a great place to spend a couple of years for those taking the usual adolescent rite of passage of a gap year or two," Prof Boccabella said.

"Quite frankly, many young people just would have stopped coming to our shores."

The reforms would have introduced a new tax classification for working backpackers to treat them as non-residents regardless of how long they were in the country, despite Prof Boccabella saying existing laws already did this.

"The most likely explanation is that backpackers had been asserting they were residents in their tax returns so as to obtain the tax-free threshold of $20,500 applicable to residents," he said.

"They were probably advised to do so by backpacker agents, or registered tax agents operating in areas of high backpacker concentration."

Last year's budget papers stated a working holiday maker could be treated as a resident for tax purposes if they satisfied the tax residency rules, typically that they were in Australia for more than six months.

"As such, the government's move to introduce the tax seems to represent a stunning misunderstanding of the residence rules," Prof Boccabella said.

"At best, this can be explained as summarising gone too far.

"At worst, our leaders are reading crib notes titled, Taxation for Dummies."

Australian Chamber of Commerce and Industry chief executive officer James Pearson hoped the delay would lead to the eventual abolition of the proposed tax.

"Working holidaymakers do jobs that otherwise would not get done," he said.

"They keep open the doors of tourism businesses - particularly in regional Australia.

"The backpacker tax focused on revenue-raising.

"Its design didn't take into account that most of the money that working holiday makers earn, and often a good chunk of their savings, is spent in the local communities in which they are employed." -ARM NEWSDESK

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