The Federal Court this week ruled the Federal Government's unpopular 15% 'backpacker tax' to be invalid as it applies to some backpackers.
On Wednesday, Justice John Logan said the tax violated Australia's bilateral treaty on taxation arrangements with the UK. Australia has similar agreements with other countries including US, Germany, Norway, Chile, Japan, Finland. and Turkey.
The challenge to the unpopular tax was funded by UK-based tax-payer interests' group taxback.com.
During late 2016, the National Farmers' Federation fought hard to prevent the Government introducing a 32% tax on working holiday makers, who farmers rely on, especially during peak season.
Compromise sought on 'backpacker tax' as working holiday-makers threaten to leave Australia
Up to 1 in 3 farm workers can be sourced from the working holiday maker population.
Introduced by the Turnbull Government with effect from 1 January 2017, backpackers now pay 15% tax on income they earned up to $37,000.
Prior to the change by the Turnbull Government, most backpackers were treated as residents for income tax purposes (if they stayed in Australia for more than 6 months) and had the benefit of the tax-free threshold).
Overall the number of backpackers dropped slightly after the tax was introduced and are now steady, although the numbers actually working on farms has actually increased significantly recently.
The applicant in this specific case was a United Kingdom national who lived in Australia on a working holiday maker visa from August 2015 to May 2017. She was living in Sydney at the time and predominantly worked as a waitress in the Sydney area.
Following an income tax assessment issued by the Australian Commissioner for Taxation in July 2017, the plaintiff challenged the assessment on the basis that it was inconsistent with Australia's international treaty obligations.
There are still some uncertainties around the ruling, for instance, the decision does not appear to directly affect all backpackers. More significantly, the ATO has yet to issue guidance to employers as to who, if at all, they need to change their payroll arrangements.
