Backpacker tax discriminatory - Addy beats ATO

At issue in the test case between Catherine Addy and the Commissioner of Taxation was whether the 15% flat rate of tax which applied to individuals working in Australia on temporary working holiday visas, contravened the non-discrimination clause in the Australian tax treaty with the United Kingdom (UK) which required that taxes applied to ‘Nationals’ of the UK should not be more burdensome that which is applied to Nationals of Australia in the same circumstances, in particular with respect to residence.

The flat rate of tax applied up to $37,000 of earnings with maximum taxation of $5,550.  Australia’s marginal tax rate system for residents which allows the first $18,200 tax free and then 19% above that up to $37,000 (in 2017) would have taxed her a maximum of $3,572.  As the flat rate of tax was higher, it was more burdensome and therefore held to be discriminatory.

The case may affect residents on working holiday visas that are nationals of UK, Chile, Finland, Germany, Israel, Japan and Norway which have similar non-discrimination clauses in the tax treaties with Australia.  Affected taxpayers may apply for an amendment, or object to their tax assessment for a refund of tax if they are within the relevant amendment period (generally 2 years).     Working holiday visa holders from other nations will still be required to pay the flat 15% tax.

Mazars assists foreign nationals with tax advice and compliance with their Australian taxes and can provide advice to employers affected by same. If you would like assistance please contact your usual Mazars advisor, the author or one of our specialists via the form below or on:

Author: Jamie Towers

Published: 03/11/2021

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