High Court rules the 2017 ‘Backpacker Tax’ cannot be levied on eight foreign countries

The High Court ruling draws the line under a four-year legal battle initiated in 2017 by Taxback.com on behalf of working holidaymakers from the eight countries. The case centred on lead claimant British citizen Catherine Addy, who argued she was discriminated against in having to pay the Backpacker Tax while on a working holiday in Australia in 2017. 

In a key win for rural industries struggling to find seasonal workers, Australia’s High Court has ruled the ‘Backpacker Tax’ introduced amid controversy in 2017 cannot be levied on citizens from some foreign countries. 

The legal action seeking to reverse the Backpacker Tax was initiated in 2018 by Taxback.com, an international tax accounting and advisory firm, on behalf of working holidaymakers from eight countries with which Australia has signed tax treaties. 

The High Court ruling draws the line under a four-year legal battle centred on lead claimant British citizen Catherine Addy, who argued she was discriminated against in having to pay the Backpacker Tax while on a working holiday in Australia in 2017. 

In its unanimous ruling the High Court accepted the argument of Ms Addy and Taxback.com that the Backpacker Tax contravened non-discrimination clauses built into tax treaties signed by Australia with the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey. 

The clauses prohibit unequal tax treatment of citizens from signatory countries compared with Australian nationals. The Backpacker Tax levies 15% on all earnings of foreign nationals, whereas Australians can earn up to the tax-free threshold – $18,500 – without being taxed. International tax treaties signed by Australia override domestic tax laws.

Opposed by rural groups and the National Party when it was introduced, the tax was seen as a disincentive to working holidaymakers to take up much-needed seasonal picking work while visiting Australia.

Taxback.com CEO, Joanna Murphy, welcomed the High Court decision, saying it brought final clarity to the situation facing thousands of foreign workers filing tax returns for the years since the Backpacker Tax was introduced.  

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

“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,” she said. 

“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.” 

Austrade estimates the overall contribution by working holidaymakers to the Australian economy is $3.1bn1 per year. They were estimated to have spent $920m in regional towns alone in 2017, the year the tax was introduced.

After 2017 Australia saw a decline in backpacker numbers, causing difficulties for many regional farms and businesses needing seasonal staff. 

The court ruling puts at risk an estimated $250 million in Government tax revenue, as roughly half of the $520m forecast by the Treasury Department to be collected by the new tax was to be paid by visitors from the countries subject to the ruling.

Taxback.com founder and Chair, Terry Clune, said: “We’re delighted with the High Court ruling. There’s an important principle at stake here – tax treaties when signed should be binding and countries should not be able to able to pick and choose when they apply. We would urge the Australian Government now to restore the previous, non-discriminatory, taxation arrangements for holiday workers. 

“The ruling also provides clarity and a way forward for other tax-discrimination cases, including Taxback.com’s challenge to the Departing Australia Superannuation Tax that is currently in the Courts,” Mr Clune said. 

In its judgment the High Court stated that ‘’the method of assessment in relation to the taxable income of Australian nationals and nationals of the United Kingdom in the same circumstances – was the same, but the tax rate was not. The tax rate was more onerous for Ms Addy, a national of the United Kingdom, than it was for an Australian national in the same circumstances – doing the same work, earning the same income, under the same ordinary taxation laws.”  

The Backpacker Tax was brought in through the Income Tax Rates Amendment (Working Holiday Maker) Reform Act 2016. The law sought to impose a higher rate of tax on foreigners who earned income on a 417 or 462 Working Holiday Visa, which are typically used by backpackers on a working holiday. 

There were almost 820,000417/462 visas granted during in the period June 2017 to June 2021 to 2020, with more than 320,000of these from the countries affected by the Backpacker Tax ruling. 

Australia has tax treaties in place with its major trading partners, and almost all contain a non-discrimination clause that prohibits unequal tax treatment of the citizens of these countries. Visitors from the eight countries with which Australia has signed non-discrimination treaties account for approximately 50% of all visitors who come to Australia on 417 or 462 Working Holiday Visas.

Anyone who has been affected by the Backpacker Tax or requires more information on the impact of today’s decision can register at www.taxback.com.

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