Addy – High Court of Australia finds that imposing higher tax on Australian residents who were visa holders than on those who were not, violated a 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 qualified as an Australian resident. A citizen and resident of Australia would have largely escaped income taxation on her modest income (mostly working as a waiter) due to the right to deduct a “tax-free threshold.” However, the “backpacker tax” provisions of Pt. III of Sched. 7 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, by virtue of her citizenship, was a UK rather than Australian national under the definition in the Australia-U.K. Treaty. That Treaty's non-discrimination clause (Art. 25) - also found in many of the Canadian treaties - provided:
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.
The Court found the contention of the Commissioner, that “because s 29 of the Migration Act ensures that an Australian national cannot hold a working holiday visa, no comparison of the kind required by Art 25(1) is possible, and Art 25(1) is not engaged,” to be specious, stating:
[C]onsistent with the text, context, object and purpose of Art 25(1), the relevant comparator is the hypothetical taxpayer in the same circumstances apart from the criterion on which the claim of discriminatory taxation is based. The phrase "in the same circumstances" means in the same circumstances apart from those circumstances attached to the prohibited basis for discriminatory taxation. Here, that is visa status, a characteristic which depends on nationality – a person not being an Australian national – the very attribute protected by Art 25(1).
Accordingly, the taxpayer was shielded by Art. 25 from the more burdensome rate of tax imposed under the domestic backpacker tax provisions.
Neal Armstrong. Summary of Addy v Commissioner of Taxation  HCA 34 under Treaties – Income Tax Conventions – Art. 25.