Australia: HWL plays Critical Role in Landmark Decision on Controversial Backpacker Tax

Harmers Workplace Lawyers played a critical role in the landmark decision, Addy v Commissioner of Taxation [2019] FCA 1768 involved legal action challenging the validity of the Australian Federal Government’s controversial Backpacker Tax.

Background

Harmers Workplace Lawyers (“Harmers”) ran a high-profile test-case in the Federal Court of Australia in 2017-2018 on behalf of an international tax and accounting company, Taxback and its clients, challenging the validity of the Commonwealth Backpacker Tax (worth c.$150 million per year to the Australian Government) on the basis of breach of non-discrimination clauses in international treaties between Australia and the United Kingdom, United States, Germany, Finland, Chile, Japan, Norway, and Turkey. This case was also a test-case on the issue of ‘residency’ for the purpose of Australia’s tax laws, and, specifically, whether a person on a working holiday visa (or ‘backpacker’ could constitute an Australian tax resident. [This was covered by the Australian media in 2017 – click here to view an article by the ABC].

Decision

On 30 October 2019, the Australian Federal Court found that the Applicant backpacker, Catherine Addy, was a ‘resident’ under the relevant tax legislation and thus subject to a tax free threshold; and that the Backpacker Tax introduced by the government is discriminatory in contravention of the international double tax agreement between the UK and Australia because it attempted to tax foreign workers in the same circumstances as an Australian resident at a higher tax rate. [The decision has also been covered extensively by the Australian media– click here to view an article by the Sydney Morning Herald; as well as international media, for example, click here to read an article by the BBC].

Implications for Taxback backpacker clients

This was a significant test case for Harmers’ client, Taxback, and the outcome has positive implications for a significant portion of its backpacker client base, who will now be paying less tax.

The Backpacker Tax is estimated to affect over 150,000 backpackers who come to Australia each year on the subclass 417/462 visas. Visitors from the eight countries who have Double Tax Agreements with Australia account for approximately 50% of all visitors who come to Australia on 417 or 462 Working Holiday Visas.

Legal action was partially funded by the Australian Tax Office as a test case and although it was brought through one of Taxback’s clients, a working holiday visa holder affected by the Backpacker Tax, the action was backed by Taxback on behalf of a significant client base, all of whom were affected.

Given the decision of the Federal Court, the Federal Government may now make amendments to its Backpacker Tax, including potentially removing it completely.

For more information please contact Joseph Granato, Communications Manager at L&E Global at joseph.granato@leglobal.org.