Tax free threshold for 417 visa and 482 visa

[#1]

Hi,

I have a query regarding the calculation of my tax free threshold for the FY20 tax year, given I was on a working holiday visa for part of this year (circa. 25 days) before transitioning to a 482 visa.

My tax agent has currently calculated my tax payable using the following methodology (with round figures used for demonstration purposes):

Current calculation
	Income	Rate	Payable
Tax free threshold	8,200	0.0%	-
19% bracket	18,800	19.0%	3,572
32.5% bracket	43,000	32.5%	13,975
WHV @ 15%	10,000	15.0%	1,500
Total	80,000	23.8%	19,047

The specific question I have, is whether it is to correct the reduce the tax free threshold of $18,200 by the $10,000 I earned while on a working holiday visa?

This, in my opinion, is a particularly unfair treatment as it significantly increases my effective tax rate (at this level of income) when compared with somone who was also a resident but had not received any working holiday maker income during the year.

*I note this does not include the medicare levy, or any other offsets. 

Any advice would be much appreciated.

Thanks.

[#2 · Accepted solution]

Hello @Taxes12345

I don't fully understand the calculation in your explanation, however your tax agent doesn't need to calculate the tax-free threshold for you as we calculate your entitlement for you automatically based on the information in your tax return.

It is determined by the number of months you were considered an Australian resident for tax purposes. If you were only a resident for part of the year, you will only be entitled to a part-year tax-free threshold.

Hope this helps

[#3]

Hi Tony,

Thank you for your response.

May I ask what part of the calculation you do not understand please?

The tax free threshold has been calculated as $18,200 less the $10,000 earned as a working holiday maker. This is one of the specific points I would like to clarify. Is it correct to net income earned as a working holiday maker from the tax free threshold? This is the part that seems particularly unfair to me (and results in a substantially higher effective tax rate than had I not earned any income as a working holiday maker). 

The 19% bracket has been calculated as $37,000 less $18,200. Should this instead be calculated as $37,000 less the $10,000 earned as a working holiday maker?

The 32.5% bracket has been calculated as $80,000 less the $18,200 taxed at 19%, less the $8,200 tax-free threshold, less the $10,000 working holiday maker income.

Thanks for your help.

[#4]

Hi @Taxes12345

Part-year residents can access a tax-free amount of at least $13,464. The remaining $4,736 of the full tax free threshold is pro-rated based on your period of residency. From 1 July 2012, the part-year tax-free threshold is calculated as follows:
$13,464 + ($4,736 x period of residency)/12    

Hope that helps.

Ari

[#5]

Hi Ari,

Thank you for your response. However, I am afraid this does not address the specific points I am querying:

Referring to my original example calculations:

The tax free threshold has been calculated as $18,200 less the $10,000 earned as a working holiday maker. This is one of the specific points I would like to clarify. Is it correct to deduct income earned as a working holiday maker from the tax free threshold? 

In addition, the 19% bracket has been calculated as $37,000 less $18,200. Should this instead be calculated as $37,000 less the $10,000 earned as a working holiday maker?

The 32.5% bracket has been calculated as $80,000 less the $18,200 taxed at 19%, less the $8,200 tax-free threshold, less the $10,000 working holiday maker income.

Thank you

[#6]

Hiya @Taxes12345,

What Ari was trying to say, is your part year tax free threshhold is determined by the amount of time you were a resident for tax purposes. Not based on any income earned. It applies to income earned as a resident for tax purposes. I can understand how you have come to the calculations you have made, but the throught process to get there is incorrect. Your WHM (Whorking Holiday Maker) income is seperate to income earned as a resident and one does nto effect the other.

[#7]

Hi Steph,

Thank you for your response.

I believe that when using the online forms, the amount recorded as working holiday maker income is automatically deducted from my tax free threshold. Could you please confirm whether this is correct or rather an error with the system?

Based on your response (and using the example figures in my initial calculation) could you please confirm that the following methodolgy appears correct (assuming I qualify for the full tax free threshold - which I believe I do given I arrived in July):

	Income	Rate	Payable
Tax free threshold	18,200	0.0%	-
19% bracket	18,800	19.0%	3,572
32.5% bracket	33,000	32.5%	10,725
WHV @ 15%	10,000	15.0%	1,500
Total	80,000	19.7%	15,797

*Acknowledging that this does not include medicare levy / other credits / offsets

Thanks for your help

[#8]

Hi @Taxes12345,

Working Holiday Maker income earned under a working holiday maker visa will always be taxed at working holiday maker rates (15% for the first $37,000), then taxed at ordinary rates.

The working holiday maker tax rate is different to the tax rate for Australian residents.

The working holiday maker tax rate is 15% until you earn $37,000.

Australian resident taxpayers get the first $18,200 tax free (known as the tax-free threshold), and then pay 19% until they earn $37,000.

Our individual income tax rate page shows the most up-to-date rates and thresholds, including those above $37,000.

Australian residents, foreign residents and working holiday makers pay the same tax rates on income over $37,000.

[#9]

Hi Blake,

Thank you for your response but I'm afraid it still does not address my specific queries. Are you able to offer some further advice on the following please:

1. When using the online forms, the amount recorded as working holiday maker income is automatically deducted from my tax free threshold. Could you please confirm whether this is correct or rather an error with the system?

2. Could you please confirm that the following methodolgy appears correct (assuming I qualify for the full tax free threshold - which I believe I do given I became a resident in late July 2019 and assuming that $10k was earned as a working holiday maker in July prior to becoming a resident):

	Income	Rate	Payable
Tax free threshold	18,200	0.0%	-
19% bracket	18,800	19.0%	3,572
32.5% bracket	33,000	32.5%	10,725
WHV @ 15%	10,000	15.0%	1,500
Total	80,000	19.7%	15,797

*Acknowledging that this does not include medicare levy / other credits / offsets

Thanks

[#10]

Hello @Taxes12345

Thank you for your patience.

To answer your original question, you are correct that the $10,000 of working holiday maker income is deducted before calculating the tax free threshold as working holiday income is taxed at 15%.

The tax free threshold would only apply to the income above $10,000 that was not considered working holiday income. Your original example would be correct in that the most tax free threshold you would be eligible for would be $8,200 ($18,200 - $10,000) provided you were a full year resident.

Hope this answers your question