AUSTRALIA’S sheep and wool industry has welcomed today’s High Court ruling that the ‘backpacker tax’ introduced in 2017 cannot be levied in Australia on citizens from some foreign countries.
Legal action to reverse the backpacker tax was initiated in 2018 by international tax accounting and advisory firm Taxback.com on behalf of working holiday makers from eight countries with which Australia has signed tax treaties.
Taxback.com said the High Court ruling draws the line under a four-year legal battle centred on lead claimant British citizen Catherine Addy, who argued she was discriminated against in having to pay the backpacker tax while on a working holiday in Australia in 2017.
In its unanimous ruling, the High Court accepted the argument of Ms Addy and Taxback.com that the backpacker tax contravened non-discrimination clauses built into tax treaties signed by Australia with the United Kingdom, the United States, Germany, Finland, Chile, Japan, Norway and Turkey.
The clauses prohibit unequal tax treatment of citizens from signatory countries compared with Australian nationals. The backpacker tax levies 15 percent on all earnings of foreign nationals, whereas Australians can earn up to the tax-free threshold of $18,500 without being taxed. International tax treaties signed by Australia override domestic tax laws, Taxback.com said.
Removal of backpacker tax disincentive welcomed
Shearing Contractors Association of Australia secretary Jason Letchford said any incentives or in this case, the removal of a disincentive, to have ‘backpackers’ come and work in the agricultural sector, is certainly welcomed by the SCAA.
“Although we will not see any immediate ‘relief’ in terms of labour-supply for this year, it will hopefully remove a deterrent for future seasonal holiday workers taking jobs as ‘shed hands’ and potentially shearers next year, when hopefully the international traveller market, returns to pre-COVID levels.”
WoolProducers Australia chief executive officer Jo Hall said given the current labour shortage in the wool harvesting sector, WPA believes that any move to increase the potential pool of labour needs to be explored.
“While current labour access schemes do not assist in supplying workforce-ready shearers, given it is a skilled profession, they may provide an opportunity to up-skill people in the wool-handling space, and this would apply to backpackers.”
Victorian Farmers Federation Livestock president Steve Harrison said from his Gippsland property that the court decision is a key win.
“Pre-COVID, a lot of backpackers made their way into rural areas — from outback Queensland to just down the road from here – and a lot them came from a rural background.
“So it’s a big win if we can encourage more backpackers,” he said.
We’ve got to be able to pay them the right amount of money and it’s ridiculous for them to be treated as secondary workers.
“They are doing as much work as everyone else and they deserve the same rights.”
Taxback.com said according to Commonwealth Budget papers, the backpacker tax was expected to raise $540 million over four years.
“If it wasn’t for COVID we would expect the tax refunds to be in the order of $250 million.”
Despite the ruling, Taxback.com said an employer who has employed backpackers remains liable to charge the backpacker tax and deduct it from PAYG.
“But a large number of backpackers will be able to get the money refunded to them when they lodge their tax returns.
“In order to get the tax refunded, the backpackers will need to satisfy the tax office that they were Australian tax residents,” Taxback.com said.
“The High Court decision does not affect the obligation of businesses regarding the backpacker tax, so there isn’t anything for businesses to challenge.”
Taxback.com said the backpacker tax was opposed by rural groups and the Nationals when it was introduced, and was seen as a disincentive to working holiday makers to take up much-needed seasonal picking work while visiting Australia.
Taxback.com chief executive officer Joanna Murphy said the High Court decision brought final clarity to the situation facing thousands of foreign workers filing tax returns for the years since the backpacker tax was introduced.
“The Court has reaffirmed important protections for foreign citizens choosing to work while holidaying in Australia.
“It was always clear to us when this tax was introduced in 2016, against the wishes of the agricultural sector, that it breached a number of international tax agreements,” Ms Murphy said.
“It also damaged Australia’s reputation as a working holiday destination.
“Ending the backpacker tax also removes a key barrier to rural and regional industries securing the workers they so badly need as Australia emerges from the COVID-19 period.”
Austrade estimates the overall contribution by working holidaymakers to the Australian economy is $3.1bn per year. They were estimated to have spent $920m in regional towns alone in 2017, the year the tax was introduced.
After 2017 Australia saw a decline in backpacker numbers, causing difficulties for many regional farms and businesses needing seasonal staff.
The court ruling puts at risk an estimated $250 million in Government tax revenue, as roughly half of the $520m forecast by the Treasury Department to be collected by the new tax was to be paid by visitors from the countries subject to the ruling.
Taxback.com founder and chair Terry Clune urged the Australian Government to restore the previous, non-discriminatory, taxation arrangements for holiday workers.
“The ruling also provides clarity and a way forward for other tax-discrimination cases, including Taxback.com’s challenge to the Departing Australia Superannuation Tax that is currently in the Courts,” Mr Clune said.
In its judgment the High Court stated that ‘’the method of assessment in relation to the taxable income of Australian nationals and nationals of the United Kingdom in the same circumstances – was the same, but the tax rate was not. The tax rate was more onerous for Ms Addy, a national of the United Kingdom, than it was for an Australian national in the same circumstances – doing the same work, earning the same income, under the same ordinary taxation laws.”
The backpacker tax was brought in through the Income Tax Rates Amendment (Working Holiday Maker) Reform Act 2016. The law sought to impose a higher rate of tax on foreigners who earned income on a 417 or 462 Working Holiday Visa, which are typically used by backpackers on a working holiday.
There were almost 820,000 2 417/462 visas granted during in the period June 2017 to June 2021 to 2020, with more than 320,000 3 of these from the countries affected by the Backpacker Tax ruling.
Taxback.com said Australia has tax treaties in place with its major trading partners, and almost all contain a non-discrimination clause that prohibits unequal tax treatment of the citizens of these countries. Visitors from the eight countries with which Australia has signed non-discrimination treaties account for approximately 50% of all visitors who come to Australia on 417 or 462 Working Holiday Visas.
Anyone who has been affected by the Backpacker Tax or requires more information on the impact of today’s decision can register at www.taxback.com.