Member Privileges

Discrimination by reason of nationality:

THE “BACKPACKER TAX”

In the 2015 budget the Commonwealth Government announced changes to the way some foreign workers, including those on working holiday visas, otherwise known as backpackers, were taxed on their earnings in Australia.

The initial proposal was to require all income to be taxed at 32.5 cents in the dollar, scrapping the tax free threshold of $18,200. That proposal was ultimately changed so that from 1 January 2017 backpackers were charged 15c tax on every dollar earnt up to $37,000, with the usual tax rates applying above that amount.

The original proposal and its amended version were highly controversial in sectors which heavily relied on backpackers and seasonal workers.

Against that background, in the 2017 tax year an English backpacker, Catherine Addy, came to Australia and worked as a waitress in Sydney for 5 months and for a short period, in WA. She was an Australian resident for tax purposes given she predominantly lived and worked in Sydney and as a result of the length of time she was there. In 2018 Ms Addy commenced an appeal to the Federal Court against the assessment of the Commissioner for the 2017 income year. Ms Addy’s appeal to the Federal Court was successful: [2019] FCA 1768. The Commissioner appealed to the Full Federal Court, which upheld the appeal [2020] FCAFC 135. The High Court granted special leave.

The primary issue for the High Court was the impact of article 25(1) of the double tax treaty between Australia and the UK1 and specifically, whether the tax levied on Ms Addy by reason of the backpacker tax was more burdensome on her, a UK citizen, than it would have been if levied on an Australian citizen. The question the High Court was required to answer was whether the more burdensome regime of the backpacker tax was imposed on Ms Addy as a result of her nationality.

The High Court found2 the tax rate imposed on Ms Addy was more burdensome as a result of her nationality and so struck down the tax insofar as it relates to backpackers from countries with a similar double tax treaty, and who are Australian residents for tax purposes. The result might have been different if Ms Addy was not an Australian resident for tax purposes.

In reaching its conclusion, the Court said by reason of article 25(1), it was required to compare the treatment of Ms Addy to that of an Australian national who was in the same circumstances. In doing this, a non-backpacker Australian tax resident was compared to Ms Addy and it was found that the only difference between their treatment under the taxation laws was as a result of her nationality, hence the non-discrimination clause in article 25(1) was contravened.

It is worth noting that article 25(1) is common in Australia’s double tax treaties. The ATO advises that the decision will impact backpackers who are Australian residents for tax purposes from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany and Israel, with whom Australia has a similar treaty.

End Notes

1 Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double

Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains 2 [2021] HCA 34

Member Privileges

In each issue of Brief we highlight a small selection of the exclusive special offers and discounts our members receive on a variety of goods and services. For the full listing of member privileges head to our website : lawsocietywa.asn.au/member-privileges/

Swan Valley Tours

World-class wineries, breweries, distilleries, countless gourmet artisan goods, handcrafted wares, top-notch eateries and endless experiences, just on the doorstep of Perth. Swan Valley Tours offers the biggest range of experiences to ensure you get the most out of your journey to the Swan Valley. Join a half or full day coach tour, choose to connect via river cruise to or from the Perth CBD and let Swan Valley Tours guide you through the best of the region’s wine, beer and produce. For an award-winning experience exploring the Swan Valley. Members of the Law Society receive a 15% discount on all Swan Valley public tours. Visit the members’ only privileges page (password protected) to view the discount code and conditions.

The Scene Team

Discounted portrait sessions. The Scene Team are Perth’s leading photographers and videographers for corporate events, commercial and government. As a member of the Law Society of Western Australia you will have access to corporate rate for Portrait sessions.. Please visit the members’ only privileges page (password protected) to view the full offer details and terms & conditions.