Pack it in: British woman wins Australian Federal Court case on ‘backpacker tax’
The ‘backpacker tax’ was introduced in January 2017 for individuals working in Australia on certain working holiday visas.
The tax applied a 15% tax rate on all income earned up to $37,000. This was contrary to the $18,200 tax free threshold that applies to Australian residents.
In effect, working holidaymakers in Australia were subject to higher rates of tax in Australia than Australian residents.
Following a challenge by the taxpayer, the Australian Federal Court found in a ruling in October 2019 that the backpacker tax could not lawfully be applied to citizens of the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey.
The case was subsequently appealed, however the High Court has now reaffirmed the original ruling.
The court found that the tax breached specific non-discrimination clauses written into the double tax treaties that Australia has with the countries named above.
Why is this relevant?
The UK has double tax treaties with a large majority of countries worldwide. The treaties are an important tool where an individual or company is subject to tax in more than one country on the same income/gains as they can protect against the risk of double taxation, either by giving a country priority over taxing rights or providing relief for tax already paid.
They also provide certainty of treatment for cross-border trade and investment, and prevent excessive foreign taxation and other forms of discrimination against UK individuals and businesses aboard.
It is not uncommon for individuals who travel for work or have homes outside the UK to be tax resident in the UK and one or more other countries. In these cases, it is important to take account of relevant double tax treaties, alongside UK tax law, in order to ensure that an individual’s UK tax position is correct and they pay no more tax in the UK than required.