Working Holiday Makers Tax Rules After High Court Ruling

Are you a working holiday maker? You might be paying too much tax

Highlights

• If you've worked in Australia from 2017 onwards while on a working holiday visa (Subclasses 417 or 462 or associated bridging visa) while a national of one of the following countries, you may have been entitled to a lower tax rate and a tax amendment or refund.
• Australia’s “double tax agreement” (or tax treaty) with Chile, Finland, Germany, Israel, Japan, Norway, Turkey, and the UK, contains a Non-Discrimination Article (NDA) that prohibits nationals from those countries from paying tax that is more burdensome than the tax requirements of Australian citizens in the same circumstance.
• In the 2021 case of Addy v Commissioner of Taxation, the High Court of Australia ruled in favour of Addy, a UK citizen who was earning money in Australia while on a working holiday visa.
• Addy would have been subject to a 15% “backpacker tax” flat rate for her first $37,000 but under the High Court ruling was found to be entitled to a lower tax rate.
• This case is significant because it’s the first time the tax treaty’s NDA has been used to apply protection for working holiday visa holders.

Addy vs Commissioner of Taxation (A bit of background)

Ms Addy, a British citizen, arrived in Australia in August 2015. She was working in Sydney under a Subclass 417 (working holiday) visa until she returned to the UK in May 2017. She lodged her tax return and was assessed under the working holiday (or “backpacker tax”) flat rate of 15% on her first $37,000 income in Australia.

Ms Addy and her legal team objected this assessment, contesting that while she was working, she was an Australian resident and, under the anti-discrimination treaty between Australia and UK (Article 25 of the UK DTA), should be taxed at a more favourable rate.

In 2021, the High Court ruled that the “backpacker tax” was discriminatory under the Non-Discrimination Article 25 of the Australia and United Kingdom Double Tax Agreement (UK DTA). As such, Ms Addy was entitled to the tax-free threshold and tax rates applicable to Australian resident nationals.

What does the Addy vs Commissioner of Tax decision mean for you?

If you are currently earning or have previously earned money in Australia while on a working holiday visa, and are both Australian tax residents and nationals from the following countries, you may be eligible for a reduced tax rate and require a tax amendment or refund:

• Chile
• Finland
• Germany (starting 1 July 2017)
• Israel (starting 1 July 2020)
• Japan
• Norway
• Turkey, and
• United Kingdom

Rather than be taxed at a flat rate of 15% for the first $37,000 you earn, you may be eligible for a tax-free threshold of $18,200 and a tax rate of 19% applied to earnings between $18,200 - $37,000.

To determine your eligibility, you should check the Australian Tax Office website for updated guidance, or contact your tax agent.

How can the YouTax team help?

YouTax helps hundreds of Australian workers understand their tax obligations and can help you determine if you are eligible for a tax amendment or refund. If you'd like help, get in touch with us on (07) 5301 9217 or send us an email below: