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Australia: Landmark Decision on Backpacker Tax: Addy V Commissioner Of Taxation [2021] Hca 34

Authors: Amy Zhang, Lauren Brouwer-French and Maria Markoulli

Background Facts

Ms Catherine Addy, a citizen of the United Kingdom, entered Australia on a Working Holiday (Temporary) (Class TZ) (Subclass 417) visa under the Migration Act 1958 (Cth) on 20 August 2015.    Ms Addy primarily lived and worked in Australia until May 2017. During the 2017 income year, Ms Addy derived taxable income of $26,576 working in casual employment as a food and beverage waiter.

Since 2003, Australia and the United Kingdom have been signatories to the Convention between the Government of Australia and the Government of the United Kingdom or the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (“the Convention”).

Article 25(1) of the Convention provides:

“Nationals of a Contracting State [the United Kingdom] shall not be subjected in the other Contracting State [Australia] to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State [Australia] in the same circumstances, in particular with respect to residence, are or may be subjected.”

In December 2016, Part III was inserted into Sch 7 to the Income Tax Rates Act 1986 (Cth) (“the Rates Act“) in relation to persons holding working holiday visas.  It applied a flat rate of tax of 15 per cent to the first $37,000 of an individual’s “working holiday taxable income”, a maximum tax liability of $5,550.  This “Backpacker Tax” took effect on 1 January 2017.  Under Pt I of Sch 7 to the Rates Act, the tax burden for an Australian citizen deriving taxable income from the same source during the same period would be less as they were entitled to a tax-free threshold for the first $18,200 and were then taxed at 19 per cent up to $37,000, a maximum tax liability of $3,572.

On 20 December 2017, the Commissioner of Taxation issued Ms Addy with a notice of assessment applying Pt III of Sch 7 to her assessable income after 1 January 2017.  Ms Addy objected to the assessment on the ground that the application of the provision to her assessable income was in contravention of Art 25(1) of the Convention.  The Commissioner did not accept Ms Addy’s objection, so Ms Addy commenced legal proceedings.

Procedural History

Ms Addy was successful at first instance in the Federal Court of Australia, with the Court finding that the tax in question was discriminatory and thus invalid.  The outcome was overturned by the Full Court of the Federal Court of Australia.  Ms Addy was then successful in obtaining special leave to appeal in the High Court of Australia.

Principal Issue

The principal question for determination by the High Court of Australia was whether the Backpacker Tax contravened the Convention by imposing a more burdensome taxation requirement on Ms Addy, as a national of the United Kingdom, than that imposed on an Australian national in the same circumstances.


The High Court of Australia unanimously held that the Backpacker Tax contravened Act 25(1) of the Convention, Significantly, this was because an Australian national in the same circumstances as Ms Addy deriving taxable income from the same source during the same period would have been taxed at a lower rate than Ms Addy.


This landmark decision is significant.  The Backpacker Tax was estimated to be worth c.$150 million per year to the Commonwealth.   The High Court’s will affect thousands of backpackers who come to Australia each year on Subclass 417/462 working holiday visas.