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Employee on Bridging Visa

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Question: Should current employer withhold tax as an ordinary Australian resident for tax purposes or at the rate applicable to working holiday visas?

Background:

Employee is a landscape architect who came to Australia on 15 November 2017 on a working holiday visa valid till 15 November 2017.

Worked for 2 employers, one in Hobart for 6 months and one in Sydney for 9 months. One of these employers sought registration to sponsor the employee but mucked up the application and it was rejected.

Currently on a bridging visa class WB/020 issued in May 2019 with an indefinite duration and which allows multiple entries to and from Australia; it also allows work but not for more than 6 months with any one employer.

Employee started with current employer on 1 July 2019 on a full-time basis as a landscape architect. Current employer has registered to sponsor the employee and intends to make the nomination application shortly. Migration agent advice is that the nomination should be successful. Assuming it is successful the current employment will become permanent.

Employee shares accommodation in Sydney but is not a lessee.

Previous employers applied 15% withholding tax on the basis of the employee working under the working holiday visa.

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Hi @Malcolm,

 

Thanks for your question!

 

What I would suggest is for the employee to have a look at determining their residency status to see if he is classified as a resident based on his circumstances. The visa status does not determine whether or not he is a resident for tax purposes.

 

He should also have a look at this page for working holiday makers, which indicates that even if he is a resident for tax purposes he will be taxed at 15% from the first dollar until $37,000 while he holds a WHM visa. Any earnings above the $37,000 will be taxed based on his residency status, so both he and the employer will need to know what that is.

 

As to the rate of withholding, if you refer to Schedule 15, you will see that if the employee held visa subclass 417 or 462, then applied for a bridging visa, the WHM tax rates still apply. So it is best to continue withholding at these rates, even if the employee is classified as a resident for tax purposes.

 

Hope this helps,

 

Rachael B.

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Hi @Malcolm,

 

Thanks for your question!

 

What I would suggest is for the employee to have a look at determining their residency status to see if he is classified as a resident based on his circumstances. The visa status does not determine whether or not he is a resident for tax purposes.

 

He should also have a look at this page for working holiday makers, which indicates that even if he is a resident for tax purposes he will be taxed at 15% from the first dollar until $37,000 while he holds a WHM visa. Any earnings above the $37,000 will be taxed based on his residency status, so both he and the employer will need to know what that is.

 

As to the rate of withholding, if you refer to Schedule 15, you will see that if the employee held visa subclass 417 or 462, then applied for a bridging visa, the WHM tax rates still apply. So it is best to continue withholding at these rates, even if the employee is classified as a resident for tax purposes.

 

Hope this helps,

 

Rachael B.

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Hi Rachael.

Thanks for your response.

I am still confused as to the amount of the tax withholding to make.The employee is an Aus resident for tax puposes. She is currently being paid $2,615.38 gross per fortnight ($68,000 per annum). So far, she is still under the $37,000 limit but if her sponsorship goes through, she will become a permanent employee and she will earn the full annual salary.

If I put $2,615 in the withholding look up tool, I get $392 for under $37,000 and $850 for more than $37,000, both with TFN supplied.

So, how much should I be witholding now?

Cheers

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Hi @Malcolm,

 

I'm sorry if my previous answer wasn't particularly helpful, I'll try to provide you with a better explanation here.

 

When you are on a WHM visa, you pay 15% tax from the first dollar that you earn up to $37,000, regardless of your residency status. The tax rates for residents, non-residents and WHMs are the same once the $37,001 - $90,000 bracket is reached (32.5%), but that first bracket is where all of the key differences are.

 

If your employee has gone from a WHM visa to a bridging visa, she will continue to be taxed at WHM rates until her visa status changes. If her year to date earnings have not exceeded $37,000 yet, you will use the first column in the lookup tool ($392). The second column will be used once her year to date earnings exceed $37,000.

 

If her visa status changes during the financial year, the best result for the taxpayer would be for you to continue withholding at WHM tax rates, remembering that if she is a resident for tax purposes you may also need to withhold 2% for the Medicare levy.

 

Once the new financial year begins, you can go back to using the appropriate tax tables based on her residency status.

 

I hope this helps, but please let me know if you have any other questions.

 

Thanks,

 

Rachael B.

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Thanks Rachael.

That is exactly what I wanted.

Cheers