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Backpackers face higher tax rate threat

AAP logoAAP 3/11/2016 Rashida Yosufzai

Backpackers will be forced to pay the government's original tax rate of 32.5 per cent from the first dollar they earn if its revised laws for 19 per cent don't pass parliament.

The higher rate had been the subject of much political heartache for the coalition amid pressure from farmers and tourism bodies concerned it will drive away working holiday visa makers from Australia.

The government has revised it to 19 per cent in a bill before parliament.

But a spokesman for Financial Services Minister Kelly O'Dwyer has confirmed that if that bill isn't cleared, the higher rate would apply.

"Unless the legislation passes the parliament the current laws strictly applied would mean that most non-resident backpackers will have to pay 32.5 per cent in the dollar," he told AAP.

Under existing laws backpackers who don't claim residency status are paying the higher rate.

However, many reduce their tax by claiming residency to benefit from the tax-free threshold of $18,200 - and there's little way to enforce compliance.

Deputy Prime Minister Barnaby Joyce clarified the 32.5 per cent rate was not new, but some backpackers had been incorrectly claiming to be residents to get the benefit.

"Many backpackers have not been paying fair tax on income earned while working in this country," he told AAP.

The new rules will treat all backpackers travelling and working in various locations around Australia as non-residents for tax purposes, so they'll pay the 32.5 per cent rate if the bill doesn't pass.

Mr Joyce warned Labor to stop delaying the bill's passage.

"Without affirmative action by the coalition government, the ATO will be obliged to enforce the 32.5 per cent tax rate that already applies to non-residents (and to many backpackers)," the agriculture minister said.

"The opposition needs to stop fence-sitting and carrying on like a two-bob watch."

Meanwhile, independent senator Jacqui Lambie is calling for the tax rate to be abolished entirely.

The Tasmanian has given notice she'll try to amend the legislation before parliament next week to put in place a zero per cent rate, and failing that, a 10.5 per cent proposal.

Businesses expressed concern the government was using "inconsistent" data to allege backpackers would get a discounted tax rate if the bill passed.

"It would also be concerning if the government's original decision to bring in a 32.5 per cent tax rate was introduced by default," James Pearson, CEO of the Australian Chamber of Commerce and Industry said.

Mr Pearson said it was misleading to claim the 19 per cent proposal was a discount for backpackers because most claim residency.

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