A British backpacker who worked as a waiter in Sydney has won a long-running legal dispute against Australia’s “backpacker tax” in its highest court.
On Wednesday the high court ruled in favour of Catherine Addy, finding the tax which slugged working holiday-makers thousands of dollars more than Australians discriminated against her on the basis of her nationality and infringed a treaty Australia signed with the UK.
The decision likely means the Australian Taxation Office will have to pay back taxes collected from up to 75,000 backpackers who worked in Australia, which has similar treaties with Chile, Finland, Japan, Norway, Turkey, Germany and Israel.
In December 2016 Australia legislated the backpacker tax charging working holiday-makers 15% on the first $37,000 they earn a year, a maximum liability of $5,550. Australians are entitled to a tax-free threshold for the first $18,200 they earn and are only liable to pay up to $3,572 if they earn $37,000.
Addy spent nearly two years in Australia between August 2015 and May 2017, earning $26,576 as a food and beverage waiter in Sydney in the 2017 tax year.
In October 2019 Addy won a challenge in the federal court arguing the tax discriminated against her on the basis of nationality and breached the Australia-UK treaty on avoidance of double taxation. In August 2020 the full federal court overturned the decision.
Addy appealed to the high court, arguing that if the backpacker tax had applied for the full year she earned $26,576, she would have been slugged $3,986 compared with an Australian who would pay just $1,591.
On Wednesday five justices of the high court unanimously allowed Addy’s appeal, finding that “more burdensome taxation” had been imposed on her due to her nationality.
“When the position of Ms Addy is compared with that of an Australian national, as it must be, that is the only conclusion which may be drawn,” they said.
The ATO said the decision was “only relevant” to holiday-makers who were “both an Australian resident for tax purposes” and from one of the eight countries with similar tax treaties.
“Most working holiday makers will be non-residents as they are in Australia to have a holiday and working to support that holiday,” it said in a statement.
“This decision will not change the tax rates for the majority of working holiday makers.”
The ATO advised employers to continue using existing withholding rates until they are updated and working holiday-makers to wait for guidance “prior to lodging or amending a return or lodging an objection”.
Joanna Murphy, the chief executive of Taxback.com, an international tax accounting and advisory firm that helped Addy bring the case, welcomed the high court decision.
“The court has reaffirmed important protections for foreign citizens choosing to work while holidaying in Australia,” Murphy said in a statement.
“It was always clear to us when this tax was introduced in 2016, against the wishes of the agricultural sector, that it breached a number of international tax agreements.
“It also damaged Australia’s reputation as a working holiday destination.”
The treasurer, Josh Frydenberg, said “the government is aware of the high court decision and the ATO is currently considering the implications of this decision and will provide guidance to taxpayers as soon as possible”.
In a statement, Labor shadow ministers labelled the backpacker tax “ill-conceived and rushed”, arguing it had contributed to “huge workforce shortage challenges which the Morrison-Joyce government is still yet to fix”.
