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The federal government has announced it will postpone the introduction of a proposed 32% tax on working holidaymakers until after the election, a move that's been welcomed by UNSW Business School's Associate Professor Dale Boccabella.

Working holidaymakers were facing a 32% tax, from the 1st of July 2016, sparking warnings they would shun Australia as a travel destination. Assistant Treasurer Kelly O'Dwyer has announced a delay in the introduction of the contentious tax by six months. 

Boccabella, a taxation expert from the School of Taxation& Business Law, has reviewed the proposals: “It wasn’t broken – so why did the government try to fix it? The backpacker tax would have taxed every dollar earnt for backpackers, working holidaymakers, and others who are here for up to two years on short term visas.

The actual taxation benefit of this is marginal, and surely we did not need a new category of taxpayer to be added to the ever expanding tax legislation.

“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. Quite frankly, many young people just would have stopped coming to our shores,” says Boccabella.

The aim of the now-delayed measure was to treat most people who are temporarily in Australia for a working holiday as non-residents (foreign residents) for income tax purposes, regardless of how long they are here.

“The actual taxation benefit of this is marginal, and surely we did not need a new category of taxpayer to be added to the ever expanding tax legislation. We currently have the classifications, ‘resident’, ‘foreign resident’ and ‘temporary resident’. That should be enough. Did we really need to add ‘backpacker’ to the list?” Boccabella asks.

He also questioned why it was necessary to introduce a measure to treat backpackers as non-residents when current law 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 says. “They were probably advised to do so by backpacker agents, or registered tax agents operating in areas of high backpacker concentration.”

In fact last year’s Budget papers stated that 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. At best, this can be explained as summarising gone too far. At worst, our leaders are reading crib notes titled, ‘Taxation for Dummies’,” Boccabella says.