On Wed 3 Nov 2021, the High Court overturned an assessment of a British taxpayer’s assessment under what is colloquially known as the ‘backpacker tax’ because it it imposes tax, at special rates, on taxpayers with a working holiday visa – but critically, here, at higher rates of tax on backpackers who succeed in becoming resident for Australian tax purposes that Australian tax residents. This was it these tax provisions breached the ‘anti-discrimination’ clause in the UK-Aust Double Tax Agreement. Tax Technical reported on this decision twice: Article 1 and Article 2. This AFR article, however gives more background and a wider perspective.

 


 

British waitress wins High Court challenge to backpacker tax

As many as 75,000 working holidaymakers look set to receive thousands in tax refunds after a British waitress won a major High Court appeal against the Coalition’s backpacker tax.

Catherine Addy – who worked as a waitress in Sydney hotels between August 2015 and May 2017 – challenged Tax Office assessments that subjected her income to rules for 417 visa holders, which impose a 15 per cent tax rate on income up to $37,000.

Resident in Australia for tax purposes, Ms Addy argued that she had been discriminated against under treaties signed with countries including the UK, Germany, Finland, Chile, Japan, Israel, Turkey and Norway.

The High Court on Wednesday unanimously allowed her appeal over earnings of almost $27,000, saying the more burdensome taxation imposed because of her nationality contravened an agreement against double taxation signed with the UK.

Visitors to Australia from the eight countries involved in the case account for as much as 50 per cent of all individuals coming to work under the 417 or 462 working holiday visa categories.

Travellers who have paid tax under the rules can seek new assessments from the ATO. An estimated $250 million in tax revenue collected since 2016 is now in doubt.

Treasurer Josh Frydenberg said guidance would be provided to affected taxpayers “as soon as possible”.

“The government will work with the Treasury and ATO to ensure that taxpayers have certainty around the tax treatment of their incomes.”

Supported by international accounting firm TaxBack.com, the appeal was watched by tax experts. TaxBack chief executive Joanna Murphy said the decision brought clarity for thousands of foreign workers filing tax returns.

“The court has reaffirmed important protections for foreign citizens choosing to work while holidaying in Australia,” Ms Murphy said.

Key barrier

“It was always clear to us when this tax was introduced in 2016, against the wishes of the agricultural sector, that it breached a number of international tax agreements. It also damaged Australia’s reputation as a working holiday destination.

“Ending the backpacker tax also removes a key barrier to rural and regional industries securing the workers they so badly need as Australia emerges from the COVID-19 period.”

Arnold Bloch Leibler partner Clint Harding said the decision provided a strong statement supporting “a practical, contextual and purposive reading of Australia’s treaty obligations”.

“The arguments raised by the commissioner in favour of a very narrow interpretation of the discrimination provision would have made it all but impossible to apply the discrimination provision in any form of pragmatic or commonsense manner.

‘Jingoistic tax policies’

“If a working holiday visa is only necessary because you are not an Australian citizen, then, as Justice Davies said in the earlier decision, the requirement to hold a visa cannot ‘sensibly be divorced from’ a person’s nationality.

“It will be interesting to see what impact the decision has on the work being done by Treasury on the new individual residency rules that the government announced in the federal budget in May, and which we have yet to see.”

Mr Harding said many non-residents were “bemoaning some of the more jingoistic tax policy settings and administrative positions that are being rolled out in relation to the tax treatment of non-residents from an Australian perspective”.

An ATO spokesman said most working holidaymakers will be non-residents for tax purposes and not covered.

“Employers should continue to follow rates in the published withholding tables for working holidaymakers until we update the ATO website with further guidance.”

Rich Lister and Visy boss Anthony Pratt has been among the critics. In 2018, he called on the government to scrap the tax to help improve economic conditions for primary producers.

The Tax Office processed just 287 returns for working holidaymakers in the year ended June 30, down from almost 100,000 pre-pandemic, highlighting Australia’s massive, yet hidden, worker shortfall.

[AFR website: High Court Backpacker article, 3 Nov 2021, Tom McIlroy Political Reporter]

[Tax Month – November 2021Previous 2021] 7.11.21

 

 

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