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Backpacker tax update

05-Nov-2019

The Federal court has found that, for certain Working Holiday Makers (WHMs), the ‘backpacker tax’ (15% on all earnings up to $37,000) amounts to a form of discrimination based upon nationality because an Australian worker undertaking the same work would have the benefit of the tax free threshold of $18,200. 

The Federal Court found that a ’double taxation agreement’ agreement Australia has with the UK provides that each country will not tax nationals from the other country more than its own nationals. 

The effect of this decision is that WHMs who are ‘residents (of Australia) for tax purposes’ are entitled to the benefit of the tax free threshold after which marginal tax rates apply starting with 19 cents in the dollar up to $37,000 just like Australian citizens.

Australia also has double taxation agreements with the USA, Germany, Finland, Chile, Norway Japan and Turkey and the Federal Court judgement more than likely applies to WHMs from these countries.

At this stage it is uncertain whether the ATO will appeal the decision and it may be that the federal government will have to amend the legislation. 

So for now, dairy farmers employing WHMs should continue to withhold tax in accordance with the current ‘working holiday maker’ requirements.