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High Court backpacker tax ruling could open floodgates

Backpacker tax
Australia's highest court has ruled against the country's so-called backpacker levy. Photo: AAP
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Australia’s highest court has ruled against the country’s so-called backpacker levy, finding it in breach of tax treaty clauses with the United Kingdom.

Under an agreement between Britain and Australia introduced in 2017, backpackers paid a flat rate of 15 per cent on income up to $37,000, without the benefit of the tax-free threshold accessible to Australian workers.

Other backpackers affected by the same rule have been waiting on the court’s decision.

British backpacker Catherine Addy appealed a 2020 Federal Court ruling that sided with the Australian Taxation Office and upheld the levy’s validity.

The High Court on Wednesday found it imposed a more burdensome taxation requirement on Ms Addy because of her nationality.

Australian taxpayers are entitled to a tax-free threshold of $18,200.

For this reason, the levy was found to contravene a tax treaty clause with the United Kingdom regarding double taxation.

“The tax rate was more onerous for Ms Addy, a national of the United Kingdom, than it was for an Australian national in the same circumstances – doing the same work, earning the same income, under the same ordinary taxation laws,” the ruling said.

Ms Addy was in Australia on a working-holiday visa between 2015 and 2017.

In 2017, she worked as a waitress in Sydney and was an Australian resident for tax purposes.

The ATO released a statement saying it was considering the High Court’s decision and would provide further guidance as soon as possible.

Johanna Murphy, CEO of global taxation support service Taxback, which backed Ms Addy’s claim, said hundreds of thousands of former backpackers could be owed tax refunds.

“I think this will have very far-reaching consequences, not just for the eight treaty countries but for all working holiday-makers who would have been interested to travel to Australia to do the very necessary work in the backpacker community,” Ms Murphy told the ABC.

“So our view is that very many of the 820,000 holiday making me holders will be entitled to the tax rebate,” she added.

– with AAP