Hundreds of millions of dollars in tax refunds could be paid to British and other holiday makers who have worked in Australia since the beginning of 2017 after a controversial backpacker tax was struck down in court.
The tax on working visitors meant all non-Australians would pay 15 per cent tax on all of their income below $18,200, unlike Australians who were not taxed on similar earnings.
The tax was ruled illegal after a successful court challenge on behalf of British waitress Catherine Addy, who worked in a restaurant in Sydney.
Federal Court Justice John Logan said that the backpacker tax could not be applied to Ms Addy because it violated a non-discrimination clause in a double taxation treaty between the UK and Australia.
The intent of the Australia-UK double taxation agreement was to ensure citizens from either country were not, when working in the other country, subject to a “more burdensome” tax regime than that applied to local citizens.
In his ruling, Justice Logan described the tax as “a disguised form of discrimination based on nationality”.
Similar treaties exist between Australia and the US, Germany, Finland, Chile, Japan, Norway and Turkey. Taxback.com, who brought the case, claim that half of all visitors to Australia who come on 417 or 462 visas are from the eight countries in question.
In 2017-18, a total of 210,456 Working Holiday Maker visas (417 and 462) were granted. Almost 38,000 of these visas were for UK citizens, and more than 22,000 were Germans.
Working tourists in the first half of the calendar year 2017 and in the 16 months since the financial year 2017-18 were also affected by the tax, meaning a huge number of potential tax refund claimants.
Ms Addy lived in one rented Sydney share house for most of her working holiday, with a only few short trips out of New South Wales, meaning she was considered a resident for tax purposes in Australia, strengthening her claim.
A University of Sydney tax law expert, Professor Richard Vann, told the Sydney Morning Herald that working holidaymakers who travel “more or less continuously” and work and live in several places around Australia will not be protected by the non-discrimination argument at the heart of Ms Addy’s successful case.
Those considered non-residents have never enjoyed a tax-free threshold, and paid 32.5 per cent tax on all income, while prior to January 1, 2017, working holiday makers considered residents for tax purposes paid nothing until their income surpassed $18,200.
The Australian government said the commissioner of taxation would make the decision on whether or not to appeal the Federal court ruling.
The Labor opposition issued a statement describing the court’s decision as “what you can expect when governments make policy on the run”.
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