farm picker

Ripples from backpacker tax case spread wide

Backpacker tax overturned

The Federal Court has handed down a decision in that could have severe impact on the working holidaymaker scheme.

The ATO notes that the decision only applies to working holidaymakers from seven countries — Britain, Chile, Finland, Germany, Japan, Norway and Turkey.

The recent decision in Addy v Commissioner of Taxation [2019] FCA 1768 found that a taxpayer was not subject to the “backpackers tax” basically due to the operation of an article of non-discrimination (Art 25[1]) in the Australia-UK Double Taxation Agreement.

By ATO estimates, around 36% of the total number of people issued with working holidaymaker visas in 2018 were from those countries.

It also points out that the decision further only affects those that are “residents of Australia for tax purposes”.

Were no appeal to be lodged by the ATO, it advises that 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.”

Working holidaymaker regime in potential turmoil

The case followed the activities of a British citizen working here on a 417 visa who appealed an ATO income tax assessment.

Catherine Addy, a 27-year-old UK drama student from London, initially came to Australia in August 2015 on a work visa. She left Australia in May 2017. She was considered to be a resident of Australia for tax purposes. Four years after arriving, Addy won the Federal Court case, the decision concluding the backpacker taxing regime discriminated against UK nationals.

The FC’s Justice Logan found an article of the Double Taxation Agreement with the UK should not tax UK nationals in a more burdensome way than their own nationals in the same circumstances. “That is a disguised form of discrimination based on nationality,” he said in his judgement.

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