The ATO has issued a decision impact statement on the High Court’s decision in Addy v FCT [2021] HCA 34. This case decided that a British citizen (the taxpayer) who held a working holiday visa but who was held to be a resident of Australia was entitled to be taxed at the more favourable rates applicable to her level of income, that apply to Australian nationals, who are resident of Australia, not the rates normally applicable to individuals who hold working holiday visas because of the non-discrimination article (NDA) in the double-tax convention between Australia and the United Kingdom (see related TT article).
The High Court unanimously held that the ‘backpacker tax‘ discriminated against Ms Addy on grounds of her nationality and therefore it contravened a non-discrimination clause (Art 25(1)) in the Double Tax Agreement (DTA) with the UK ([2003] ATS 22). As a result, she should be taxed at the standard resident rates.
According to the DIS, the decision only affects nationals from one of 8 countries who was the holder of a working holiday visa (Subclasses 417 or 462, or associated bridging visa) and was a resident of Australia. The countries are Chile, Finland, Germany (from 1 July 2017), Israel (from 1 July 2020), Japan, Norway, Turkey and the UK.
The DIS states that most holders of working holiday visas will not be residents of Australia. In its view, that is because persons who come to Australia for the purposes of a holiday – even if they work while here – generally do not become residents of Australia.
However, in what the DIS terms the “far less common situation” where a taxpayer held a working holiday visa but subsequently remained in Australia, that taxpayer may be a resident. This means that, if the taxpayer is also a national of one of the above countries, the High Court’s finding may be applicable. For example, this may apply if a taxpayer held a working holiday visa and subsequently obtained a different visa for a purpose other than having a holiday. The DIS considers that other cases where a taxpayer holds a working holiday visa and is a resident are “theoretically possible” – but “will be rarely found in practice”.
[I’m not so sure that the cases are as rare as the Commissioner says – they need only be in Australia for at least 183 days in any income year, without a ‘usual place of abode’ in the Treaty country, or come here, intending to reside – notwithstanding the dual ‘holiday’ aspect of their ‘working holiday’ 2 year visa.]
COMMENTS are due by 11 February 2022.
[ATO website – Addy DIS; LTN 1, 5/1/22]
[Tax Month – January 2022 – Previous 2021] 8.1.22