- The Federal Court has ruled a tax on working holiday visa holders is invalid
- The court said it was a form of discrimination in violation of tax treaties Australia has signed
- Farmers have blamed the tax for a slump in seasonal workers
The ruling said the tax was a "form of discrimination based on nationality" and in contravention of several treaties Australia has signed with other countries.
The landmark court decision found the Federal Government's controversial 'backpacker tax' cannot lawfully be applied to citizens from eight foreign countries.
Those are the United Kingdom, the United States, Germany, Finland, Chile, Japan, Norway, and Turkey.
The tax on working holiday-makers was introduced in 2017 and meant any foreigner on 417 or 462 visas who earned under $18,200 would need to pay 15 per cent tax, unlike Australians who were not taxed on similar earnings.
Each year about 150,000 foreigners come to Australia on working holiday visas, meaning the case could potentially impact upon half of those who worked here between the 2017 and 2019 financial years.
Catherine Addy, who the test case was mounted on behalf of, told the ABC in an emailed statement through her lawyer that she was pleased with the outcome, which had now been ruled had discriminated against working holidaymakers.
Ms Addy came to Australia on a working holiday visa in 2015, undertaking various roles in the hospitality industry before returning to the UK in 2017.
The ATO hit her with a tax bill for her work in Australia, which she disputed as part of the case.
She welcomed the Federal Court upholding her appeal.
"I think it is wrong that foreigners should be taxed more harshly than Australians when they are doing the same work," Ms Addy said.
"In my opinion it is a slippery slope. It just makes sense, no matter where you come from, that if you are doing the same work then you have to be paid the same money."
The divisive proposal to institute the tax was floated in the 2015 Budget and the level of taxation changed several times, leading to widespread confusion among working holiday-makers.
It also angered the farm sector, with many farmers reliant on seasonal labour blaming the tax for a slump in workers at harvest times.
In early 2017, international tax advisory firm Taxback.com launched legal action seeking to have the tax overturned.
And on Wednesday in Brisbane's Federal Court, Justice Logan agreed it was invalid.
"That is a disguised form of discrimination based on nationality," he said.
"That is exactly the type of discrimination which is prohibited by Art 25(1) of the Double Taxation Agreement and, per force of s4 of the Agreements Act, prohibited by that Act.
"It is but a more particular variant of the disguised discrimination example given in the OECD commentaries, at 332, , of different treatment of individuals based on whether or not they hold, or are entitled to, a passport issued by the State."
In a statement, Taxback.com CEO Joanna Murphy welcomed the decision.
"In our view it was very clear, when the tax was introduced in 2016, that it discriminated against foreign workers and breached several international tax agreements," she said.
"It also damaged Australia's reputation as a working holiday destination."
Visitors from the eight countries account for approximately 50 per cent of all visitors who come to Australia on 417 or 462 working holiday visas, according to Taxback.com.
How the tax came into being
From the moment the tax was proposed it caused widespread anger and confusion among farmers and the tourism industry.
It was made worse by 18 months of unedifying politics on all sides, as a series of deals among the major parties and independents caused further anxiety in regional Australia about where the rate would end up.
Without talking to the industries that would be most affected and without modelling the economic impact of its decision, the 2015 budget announced the Government's intention to crack down.
Four months later, the Coalition Government announced a compromise, to lower the rate to 19 per cent, but to tax backpackers 95 per cent on their superannuation.
At one point, Labor and Tasmanian independent senator Jacqui Lambie each moved an amendment to set backpacker tax rates at 10.5 per cent, in line with New Zealand.
In the end, the backpacker tax passed the Senate after the Greens agreed to a deal to support the Coalition's preferred 15 per cent backpacker tax rate in exchange for significant concessions from the Government.
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