The ATO has appealed to the Full Federal Court against the decision in the matter of Addy v Commissioner of Taxation [2019] FCA 1768. This is the case that found that a taxpayer was not subject to the “backpackers tax” basically due to the operation of an article of non-discrimination (Art 25[1]) in the Australia-UK Double Taxation Agreement. It held the working holiday tax regime did not apply due to the agreement.

The case follows the activities of a British citizen working here on a 417 visa who appealed an ATO income tax assessment. Catherine Addy, a 27-year-old UK drama student from London, initially came to Australia in August 2015 on a work visa. She left Australia in May 2017. She was considered to be a resident of Australia for tax purposes.

Four years after arriving, Addy won a Federal Court case, the decision concluding the backpacker taxing regime discriminated against UK nationals. The FC’s Justice Logan found an article of the Double Taxation Agreement with the UK should not tax UK nationals in a more burdensome way than their own nationals in the same circumstances. “That is a disguised form of discrimination based on nationality,” he said in his judgement.

In a statement issued this week, which is specifically pertinent to practitioners with affected clients (see below), the ATO says it will continue to administer the working holiday maker income tax rates in line with current practice until the appeals process is exhausted.

It emphasises that employer obligations have not changed and employers should apply the PAYG withholding tax rate in accordance with their employees Tax File Number declaration.

“If a worker identifies themselves as an Australian resident for tax purposes, and our records indicate they are a working holiday maker, we will notify both the employer and worker of their working holiday maker status and advise them to apply the relevant tax rate,” the ATO states.

The impact of the decision and any appeal is limited to working holiday makers from Chile, Finland, Germany, Japan, Norway, Turkey and the United Kingdom; who also qualify as residents of Australia for tax purposes. “Of the Working Holiday Maker visas issued in 2018, only about 36% were from those countries,” the ATO says, “and most will not qualify as tax residents of Australia due to the itinerant and temporary nature of their time spent in Australia.”

Further, the ATO encourages working holiday makers who may potentially be entitled to a refund are encouraged to wait until the appeal has been decided before seeking a refund, amending their return or objecting.

“Working holiday makers will not be disadvantaged in such circumstances as they will be able to lodge an amendment request with the Commissioner at a later time,” the ATO says. “In the event that a taxpayer’s amendment period has expired, the Commissioner will give favourable consideration to any requests to extend the time for lodgement of an objection.”