On 6.8.20, the Full Federal Court has allowed the ATO’s appeal against a decision that the so-called “backpacker tax” did not apply to a British national who was a tax resident of Australia because of a non-discrimination clause in the Australia-UK DTA.
See below for further details.
The facts were these:
- The taxpayer is a British citizen who arrived in Australia on 20 August 2015 on a 12-month working holiday visa. She obtained a second 12-month visa (by working on a farm in WA) and eventually returned to the UK on 1 May 2017.
- For most of her time in Australia, the taxpayer lived with a friend in share house accommodation in Earlwood in Sydney, having arranged it before leaving the UK. It was also her postal address here. She had 2 bank accounts and a pre-paid mobile phone account in Australia.
- From 18 July 2016 to 30 April 2017 the taxpayer worked as a waitress in Sydney. Her wages were paid into one of the Australian bank accounts.
- The ATO eventually accepted she was a resident for 2016-17, but assessed her to pay tax on the taxable income derived from 1 January 2017 at the working holiday tax rate (the “backpacker tax”). (Under the “backpacker tax” the first $37,000 of taxable income is taxed at 15% and the balance is taxed at the standard resident rates – which is to say that there is no tax free threshold income amount, like other tax residents.)
In Addy v FCT [2019] FCA 1768, Logan J held that the taxpayer was a tax resident, both within the ordinary meaning of that term and under the 183-day test. His Honour also held that, by virtue of a “non-discrimination clause” (Art 25) in the Australia-UK DTA, the taxpayer was entitled to be taxed at the same rates that apply to Australian citizens who are tax residents, including getting the benefit of the tax-free threshold.
The Full Federal Court has allowed the ATO’s appeal.
Residence –
- Derrington J (Davies and Steward agreeing) held that the taxpayer was not a tax resident according to the ordinary meaning of that term. In particular, her intention was to visit Australia for a holiday, even if she had to work to support herself, the nature of her presence here was always temporary and for a finite duration and purpose, at no time did she establish any legally enforceable right to occupation of any dwelling in Australia and she had no significant assets here.
- Derrington and Steward JJ (Davies J agreeing) also held that the taxpayer was a resident under the 183-day test because there was no evidence that the Commissioner was satisfied that her usual place of abode was outside Australia and that she did not intend to take up residence in Australia.
DTA anti-discrimination article – A majority (Derrington and Steward JJ, Davies J dissenting) then held that Art 25 of the Australia-UK DTA did not apply as the taxpayer was not discriminated against on grounds of nationality.
- The “backpacker tax” applied because she derived “working holiday taxable income” and it was not her nationality that compelled her to obtain a working holiday visa to enter Australia.
- There was a wide range of visas which would permit a British national to enter Australia and earn income. In other words, the holding of a working holiday visa was a matter of choice and there no necessary nexus between her nationality and her liability to pay the “backpacker tax”.
[CofT v Addy [2020] FCAFC 135, Full Federal Court, Davies, Derrington and Steward JJ, 6 August 2020; LTN 152, 7/8/20]
Posted 8.8.20