Working Holiday Tax Back in Australia Could Increase

Working holiday visa holders everywhere in Australia will rejoice to hear they may be entitled to a HUGE refund! 

Backpackers Whitehaven Beach Whitsundays Australia

November 1, 2019

Australian Working Holiday Makers may be entitled to a tax refund after the Australian Federal Court ruled the controversial ‘backpacker tax’ a form of discrimination. The backpacker tax, introduced in 2016, has meant that travellers on category 417 or 462 Working Holiday visas must pay 15% tax on income earnt up to $37,000, unlike Australians who have a tax-free threshold of $18,200. This has been a source of confusion and frustration for both backpackers and Australian farmers who blame the tax for the decrease in the availability of seasonal workers. 

On 30 October 2019, Judge John Logan ruled that the backpacker tax could not be applied to  Catherine Addy, a UK national, who was ‘considered an Australian resident for tax purposes’ during her working holiday in Australia. This related directly to a non-discrimination clause in a double taxation treaty between Australia and the UK. There are similar double taxation treaties between Australia and the US, Finland, Germany, Norway, Turkey, Japan and Chile and working travellers from these countries may also be entitled to a tax refund.

Unfortunately, this decision does not apply to travellers whose home countries do not have a double taxation treaty with Australia or those who were considered non-residents during their time in the country.

Residency Classification

Residency status for backpackers is determined on an individual basis and only a relatively small percentage become classified as Australian residents for tax purposes. In simple terms, your residency status for tax will depend on how long you have been in Australia and how much you travel while you are here. 

Working Holiday Makers who are in Australia for at least half of the income year (183 days), hold a long-term job, live primarily in the one location for over six months and become part of the local community are likely to be considered an Australian resident for tax purposes. You are also likely to be considered an Australian resident for tax purposes if you contribute a percentage of your income into an Australian superannuation fund. On the other hand, if you live more of a traditionally nomadic backpacker lifestyle your residency status will not change.

Outcome Pending

Whether or not eligible backpackers will receive a refund and the directions for current employers are still to be determined. However, if the Commissioner of Taxation does not appeal Judge Logan’s ruling, the ATO has vowed to treat these travellers the same as any other Australian tax resident in resolving the matter. For updates the ATO's official website. 

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