SUPERANNUATION could be the sticking-point in the revised backpacker tax, announced last week.
While agriculture groups praised the Federal Government for its decision to abandon a proposed 32.5 per cent tax on working holiday makers (WHMs) in favour of a 19pc rate, some have questioned backpackers' rights to claim retirement contributions.
WHMs receive income and superannuation guarantee contributions at 9.5pc of their income.
WHMs can access their superannuation when they leave the country because they do not have the right to retire in Australia and receive the Age Pension, according to Treasury.
Superannuation payments to departing WHMs are currently taxed at an effective rate of about 47pc as the Departing Australia Superannuation Payment (DASP).
Last week's WHM visa changes will see that increase to 95pc from July 1, 2017 to help offset some of the cost of their reduced income tax rate.
Some submissions to the federal government's WHM visa review on the tax suggested the majority of the superannuation is not claimed by WHMs upon leaving the country.
The review's submissions also included anecdotal evidence on the regulatory burden associated with superannuation for WHMs.
One respondent described it as taking about three hours to process superannuation details for each new worker.
According to the WHM visa review, Australia is the only country that requires superannuation to be paid on all earnings.
Guaranteed super, together with the high minimum wage and low tax rates, were considered effective lures for attracting international young people wishing to work and travel.
"The majority of feedback at stakeholder engagement, as well as a large number of submissions, indicated that removing superannuation paid to WHMs was seen as an alternative to raising the tax," the review said.
"These views observed that the role of superannuation was to fund retirement savings, and refunding all superannuation to the government upon exit could be a replacement revenue source.
"Nonetheless, it was suggested that some superannuation is already retained by the government since it is not claimed by WHMs upon leaving the country.
"Further, other stakeholders noted that superannuation was forced saving out of a given wage, rather than an additional increment to the market wage, and removing this from WHMs was therefore inappropriate."
Not entirely well-received
Queensland federal MP Bob Katter called for backpackers' superannuation payments to be removed.
“Why should farmers and hospitality operators have to pay backpackers’ superannuation?" Mr Katter said.
“I don’t want the farmers to have to pay superannuation to a person who is not an Australian resident and who on average makes $13,000 a year if they’re lucky.
“This 95pc grab on superannuation is tax by another name."
Greens treasury spokesperson, Senator Peter Whish-Wilson, heavily criticised the new tax rate.
“Scott Morrison is selling rotten eggs to farmers and calling it pavlova. And all the while he wants praise for doing it," Mr Whish-Wilson said.
“The Greens will vote this new tax down when it comes before parliament and we are calling on Labor and the cross-bench to do the same.
“Rather than penny-pinching from low-paid workers, and putting our agricultural producers at risk, the treasurer should be embarking on real economic reform to raise the billions needed to run our economy."
Victorian Farmers Federation horticulture vice president Emma Germano also expressed concern over the question of backpackers' superannuation.
“We were told at the roundtable discussions industry had with government earlier this year that super was off the table, and not to make any recommendations on this area,” she said.
“But now treasurer Morrison has announced a large-scale reform to super and we would appreciate the chance to respond.
“We have always said that if backpackers want to work in Australia, they need to be taxed like the rest of us but the Government needs to be reasonable in its approach."
In its submissions to the WHM visa review, the Australian Taxation Alliance said the short-term nature of employment conducted by working holiday makers should be reflected in a regulatory framework most adaptive to the situation.
"As such, entitlements such as superannuation or leave for individuals not intending to reside in Australia on a long-term basis represent an unnecessary regulatory and economic cost," it said.
"Therefore, the ATA holds that WHMs should be classified under a similarly legislative regime to casual workers as opposed to those earning full – time remuneration."
It also recommended repealing superannuation entitlements for WHM who earn more than $450 per month.
Mr Katter called on the government to cut out the paperwork for farmers.
"The Government could have saved the farmers a lot of work. The administration involved with doing it this way is totally counterproductive," he said.
“We appreciate appearing to back down on the backpacker tax but the payment of tax plus superannuation, the amount taken out of the backpackers pay and the farmers pocket amounts to 28pc anyway.
“If the backpackers were Australians, they’d pay no tax at all because they wouldn’t meet the threshold.
"Whilst we appreciate the efforts made by people like George Christensen, this is no victory, when in fact we’ve gone from zero taxation on backpackers to 35pc to now at least 28pc if you include the grab on their super.”
Compliance the real issue
Law enforcement- not tax rates – would solve a lot of problems according to a major tax claiming service.
In its WHM visa review submission, global consumer tax service provider, Taxback, pushed the case for tax law compliance enforcement.
Taxback chairman Terry Clune said if WHM resides in Australia for less than 183 days they do not qualify as a resident for tax purposes, and should not be availing of the tax-free allowance.
"They are therefore required by law to pay 32.5pc tax. However many tax filing operators are not adhering to this residency obligation and are filing non-residents (less than 183 days) as residents (more than 183 days), allowing these WHM avail of the tax-free allowance which results in zero tax liability," Mr Clune said.
He said Taxback had raised the issue with key parties in Canberra in 2012, including examples of breaches, however noncompliant practices have continued.
"If these rouge tax filing operators were forced to be compliant the issue highlighted by the treasurer would be easily rectified without any requirement to change tax policies," Mr Clune said.