Addy – Federal Court of Australia finds that the imposition of flat tax on UK working-holiday visa holders contravened the Treaty non-discrimination Article

The taxpayer, who was a British citizen aged 23, came to Australia on a “working visa” for a 20-month stint, during which period she was found by Logan J to be resident in Australia on ordinary principles. A citizen and resident of Australia would have largely escaped income taxation on her modest income as a waiter due to the right to deduct a “tax-free threshold.” However, the “backpacker tax” provisions of the Australian Rates Act provided that a “working holiday worker” (defined to include the holder of a working visa), was subject to 15% tax on her income.

The taxpayer, although an Australian resident, was by virtue of her citizenship a UK national and not an Australian national under the definition in the Australia-U.K. Treaty. That Treaty's non-discrimination clause (also found in many of the Canadian treaties) read:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

Logan found that this 15% tax contravened this clause given that “Only non-citizens can hold the types of visa that constitute a “working holiday visa.” He stated:

[T]he discrimination between resident derived income from the same source in Australia is based on nationality. It is disguised by the reference to “working holiday maker” but the definition of that term makes it plain that what the disguise covers is nationality. A resident “national” of Australia undertaking the same work as did Ms Addy … would have the benefit of the tax free threshold.

This decision potentially also is of corporate interest given that “nationals” can include companies deriving their status from the domestic law.

Neal Armstrong. Summaries of Addy v Commissioner of Taxation [2019] FCA 1768 under Treaties – Income Tax Conventions – Art. 25 and ITA s. 2(1).