Two days after the Federal Court decided that the ‘backpacker tax’, imposed on a UK working holiday maker, was ineffective (as a breach of the UK-Aust Double Tax Agreement ‘anti-discrimination’ provisions), the Commissioner issued his 1 November 2019 statement, on the effect of this case. This was whilst he worked out if he would appeal the decision. See Tax Technical article about the Addy decision on 30.10.19. Subsequently (on 26.11.19) the Commissioner did announce he would appeal this decision (see related Tax Technical article).
See below for the Statement.
Statement from the ATO on Addy v Commissioner of Taxation
Following recent media commentary, the ATO issued the following ‘Statement‘ to clarify the likely impact of the recent court decision in Addy v Commissioner of Taxation.
This decision relates to whether an individual that entered Australia as a working holiday maker was a resident of Australia for tax purposes and whether that individual paid tax at the 15 per cent tax rate applying to working holiday maker income or at the rates applying to residents (which incorporate the tax-free threshold).
It is important to note that the ATO is still considering this decision and has not yet decided whether an appeal is appropriate.
The Court found that, considering the individual facts of the case, the working holiday maker in question was a resident for tax purposes and that the non-discrimination article in the relevant treaty meant that the taxpayer was entitled to be taxed under the ordinary resident tax rates instead of at the 15 per cent rate that currently applies to working holiday makers.
This decision only applies to working holiday makers from Chile, Finland, Germany, Japan, Norway, Turkey and the United Kingdom. Around 36 per cent of the total number of people issued with Working Holiday Maker visas in 2018 were from those countries. The decision further only affects those that are a resident of Australia for tax purposes.
Residency status depends on the circumstances applying to each individual working holiday maker. As every working holiday maker will have different circumstances, this decision does not mean that every working holiday maker is a resident. In our view, many working holiday makers are not tax residents due to the itinerant and temporary nature of their time spent in Australia.
If the ATO does not appeal, any affected taxpayer who may be entitled to a refund can object to their assessments to have their tax residency considered. However, this would be determined on a case-by-case basis with regard to their individual circumstances.
If the decision is not appealed, and these taxpayers can show they were residents for tax purposes, they will be treated the same as other Australian tax residents, i.e. entitled to the benefit of the tax free threshold of $18,200, after which marginal rates of tax apply, starting at 19c in the dollar.
The ATO is still considering the decision and we will advise the public if an appeal is lodged.
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