Australian backpacker tax ruled illegal
31 Oct 2019
Some 75,000 casual holiday-workers may be in line for payouts of thousands of dollars from the Australian Tax Office (ATO)
31 Oct 2019
This follows a legal challenge from a British woman resulted in a landmark ruling that the so-called ‘backpacker’ tax is illegal.
In 2017, the Australian government introduced a controversial 15% tax rate on two visa categories for working holiday-makers. This meant that any foreigner on a 417 or 462 visa earning less than $18,200 (£9,728) has had to pay tax, unlike Australians who are not taxed on similar earnings.
British tourist Catherine Addy brought a case to the Federal Court, backed by Dublin-based tax advisory firm Taxback.com. The court decided the tax is a ‘form of discrimination based on nationality’, and was in contravention of a non-discrimination clause in a double taxation treaty between the UK and Australia.
Similar treaties exist between Australia and the US, Germany, Finland, Chile, Japan, Norway, and Turkey.
Each year about 150,000 foreigners go to Australia on working holiday visas, and Taxback.com estimates suggest the case could potentially impact upon half of those who worked there between the 2017 and 2019 financial years.
However, a key issue in the case contested in court was that Addy lived mainly in a shared house in Sydney during her working holiday. This meant she was considered a 'resident' for tax purposes in Australia, while other holiday-makers who move around from city to city may be considered 'non-residents'.
The ATO has suggested that the ruling only applies on those with working holiday visas who are classed as ‘resident’, which means the numbers in line for pay-outs could be much smaller. The tax authority has also said it is considering an appeal against the court’s decision.
Taxback.com CEO Joanna Murphy said the backpacker tax ‘discriminated against foreign workers and breached several international tax agreements. It also damaged Australia's reputation as a working holiday destination.’
As well as applying to those who are deemed resident, the ruling only applies to the eight countries which have signed double taxation agreements with Australia. This includes a commitment not to impose ‘more burdensome’ rates on citizens which are resident there.
Ireland is not included in this group as its tax deal with Australia omits this specific protection.
If the ATO decides against an appeal, then foreign visiting workers who meet the necessary criteria will be treated the same as other Australian tax residents. This means they are entitled to a tax-free threshold of $18,200, after which marginal rates of tax apply, starting at 19 cents in the dollar.
Murphy said: ‘We're optimistic that this ruling can be the catalyst for compelling the Australian tax authorities to reverse their position and stop discriminating against all holders of holiday-work visas, including from Ireland.
‘We look forward to the government restoring the previous, and fairer, taxation arrangements.’