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Backpacker tax not discriminatory, court says, denying 75,000 working holiday-makers ATO money

ABC NEWS logo ABC NEWS 6/08/2020 By national rural reporter Clint Jasper
a person sitting on display in a store: Farmers blamed the confusion around the tax on a big slump in seasonal workers. (ABC Rural: Kallee Buchanan) © Provided by ABC NEWS Farmers blamed the confusion around the tax on a big slump in seasonal workers. (ABC Rural: Kallee Buchanan)

In a win for the Australian Tax Office (ATO), a full bench of the Federal Court has ruled the Government's controversial backpacker tax is not discriminatory.

In October last year, the Federal Court decided the tax was a "form of discrimination based on nationality".

Citing its test case, the court ruled the tax could not be applied to a British woman living in Australia on a working holiday visa because it was in contravention of a non-discrimination clause in a double taxation treaty between the UK and Australia.

British woman Catherine Addy was working in Australia on a working holiday-maker visa in 2015 in a variety of roles before returning to the UK in 2017.

She was hit with a tax bill that she disputed, and with the backing of international tax advisory firm Taxback.com took the matter to court.

The October decision meant an estimated 75,000 working holiday makers could have received money back form the ATO.

But a full bench of the Federal Court overturned that decision on Thursday when it handed down its judgment on the ATO's appeal.

Appeal upheld

The appeal was largely upheld because justices Davies, Derrington, and Steward all agreed that Ms Addy should not have been considered as a resident for tax purposes.

"There is little doubt that while the duration of Ms Addy's presence in Australia for almost 18 months might tend to evidence residency here, the nature and quality of her occupation at the Earlwood house weighed heavily against that conclusion, as did her modality of life," Justice Derrington said in the judgement.

The original decision said that because Ms Addy primarily resided at an address in Sydney, she should be considered a resident for tax purposes.

But Justice Davies disagreed with justices Derrington and Steward on the the matter of the discriminatory nature of the tax.

She wrote the 15 per cent tax on working holiday makers "is discriminatory against British nationals resident in Australia who derive such income", and was therefore an infringement of the Australia-United Kingdom Double Tax Agreement.

But the majority of justices disagreed, because the tax agreement with the UK prohibits discrimination based on nationality.

They decided that Ms Addy was not in Australia because of her nationality, but because she applied for and was granted a working holiday visa.

Long running saga

Under a tax treaty Australia has with the UK, Chile, Finland, Germany, Japan, Norway, and Turkey, working holiday-makers can qualify as residents of Australia for tax purposes.

And under those treaties, they should not be taxed "in a more burdensome way" than Australian nationals.

The backpacker tax fixes deductions of all working holiday-makers' earnings at 15 per cent.

Previously, they were eligible to earn up to $18,200 tax-free.

So unlike Australian citizens, the backpacker tax has no tax-free threshold.

The divisive proposal to institute the tax was floated in the 2015 Budget and the level of taxation changed several times, leading to widespread confusion among working holiday-makers.


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