Set up tax for working holiday makers and backpackers

If you employ working holiday makers, you'll need to split out their employment record to include working holiday maker's tax (also known as backpacker tax) in their employment record from 1 January 2017.

How it works

  • From 1 January 2017, the ATO began classifying employees with Subclass 417 (Working Holiday) or Subclass 462 (Work and Holiday) visas as working holiday makers (ATO website).
  • If you employ a working holiday maker, you must report their earnings on separate payment summaries before and after 1 January 2017. You'll also need to register as working holiday maker employer (ATO website).
  • To separate payment summaries for a working holiday maker, use the terminate process in Xero to complete their employee record up to 31 December 2016. Then add the employee back into Xero with an updated status as a working holiday maker from 1 January 2017.
  • You may need to process a tax adjustment for these employees to accurately set their withholding variation.
  • Working Holiday Makers can't file their TFN Declaration electronically in Xero.

Set end dates for existing working holiday makers

Before the first pay run of 2017 identify who your working holiday makers are, then:

  1. In the Payroll menu, select Employees.
  2. Click the employee's name to open their details.
  3. Click the Employment tab.
  4. From Options, select Set termination date.
  5. Under Termination Date, enter the end date as 31 December 2016.
  6. Record their leave balances so you can set them as opening balances in the new employee record you'll create later. Then overwrite their leave balances as '0'.
  7. Click Save.
  8. Repeat for each employee classified as a working holiday maker.

Enter new employee records with updated status

Add your working holiday makers back into Xero using the add the employee process with the following differences. When you select:

  • Employment tab, enter their start date as 1 January 2017.
  • Leave tab, enter opening leave balances using the information you recorded earlier.
  • Taxes tab, under Residency Status select Working Holiday Maker.

    If your employee has a Working Holiday Maker status, their payment summary will display their income status type as 'H'. Payment summaries for other employee types will display as 'S'.

  • Taxes tab, click Save Only.

You can now post a pay run for the employee.