To qualify for WHM tax rates in Australia, two conditions must be met:
-
WHM Status: The individual must hold either:
- A Subclass 417 (Working Holiday) visa,
- A Subclass 462 (Work and Holiday) visa, or
- A bridging visa related to a Subclass 417 or Subclass 462 visa application.
-
Earning Working Holiday Taxable Income (WHTI): This includes the individual's net Australian sourced taxable income, excluding certain amounts. It's calculated as:
- Assessable income from Australian sources while on a WHM visa (excluding superannuation or employment termination amounts),
- Minus deductions claimable against that income.
WHM tax rates only apply to WHTI. Other income is taxed at general resident or non-resident rates, depending on the individual's residency status.
Residency affects WHTI calculation:
- Non-residents: Certain Australian sourced income, like interest and dividends, isn't assessable (and thus not WHTI). Instead, it's subject to withholding tax.
- Residents: While residents are taxed on worldwide income, WHTI is limited to Australian sourced income. Foreign sourced income isn't subject to WHM tax rates.
Tax Tip for Temporary Residents: Temporary residents, holding temporary visas and not considered Australian residents for social security, have special rules:
- They can exclude certain income, like most foreign sourced income and capital gains on assets not taxable in Australia, from assessable income.
- This exclusion is significant for resident WHMs meeting the temporary resident definition, as capital gains on certain Australian shares are also excluded from WHTI.
The WHM tax rates have generally applied to both resident and non-resident WHMs since January 2017. However, a recent court case, Addy v FCT [2019] FCA 1768, questions the application of WHM tax rates to specific resident WHMs, potentially leading to arguments for resident status instead of non-resident status.
Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.
