• Taxback.com win Australian Court Case on behalf of working holidaymakers
• Backpackers may now be due significant tax refunds
In a landmark decision, the Federal Court in Brisbane has ruled that the controversial Backpacker Tax cannot lawfully be applied to citizens of the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey.
On Wednesday 30 October 2019, the Court found that the tax breached non-discrimination clauses which are built into tax treaties that Australia has signed with each of these eight countries.
The Backpacker Tax was introduced in January 2017. The law imposed a higher rate of income tax on backpackers who entered Australia on a 417 or 462 Working Holiday Visa.
In short, the tax-free threshold of $18,200 that applied to working holidaymakers was replaced with a 15% tax rate on all income up to $37,000.
As a result, backpackers were taxed at a higher rate than Australian residents.
However, Justice Logan of the Federal Court in Brisbane has ruled that the Backpacker Tax is invalid.
The legal action against the Backpacker Tax was initiated by Taxback.com on behalf of working holidaymakers from the eight countries.
Australia has tax treaties in place with many of its major trading partners. Almost all of these tax treaties contain a non-discrimination clause that prohibits unequal tax treatment of the citizens of these countries.
Taxback.com CEO, Joanna Murphy, welcomed the Court decision. She believes it validates important protections for foreign citizens who choose to visit Australia on a working holiday.
"We're delighted that the Court has accepted our argument and look forward to the Government restoring the previous, and fairer, taxation arrangements that applied to holiday workers.
"In our view it was very clear, when the tax was introduced in 2017, that it discriminated against foreign workers and breached several international tax agreements," she said.
The judge's ruling could set a precedent going forward as it is highly unusual for a country to have different tax regimes for countries from similar territories.
The Australian Court has decided that any backpacker who spends 10 months in Australia will be treated as a resident for tax purposes. It is likely that this will account for the majority of backpackers that visit Australia.
The ruling is undoubtedly great news for backpackers.
Thousands of backpackers who have worked in Australia over the last three years will likely be entitled to significantly larger tax refunds.
And backpackers who have previously claimed an Australian tax refund can sign up here to investigate whether they are entitled to an increased refund.
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