UPDATE: Backpacker Tax Appeal

UPDATE: Backpacker Tax Appeal

UPDATED: April 2020

Backpacker Tax Timeline

A history of the controversial backpacker tax:

  • The government first unveiled its backpacker tax plans in its 2015 budget, revealing that working holiday makers would be taxed at 32.5 per cent from their first dollar, starting on July 1, 2016.
  • December 2016 – Federal Government secured support of the greens to set the backpacker tax rate at a compromised 15%. In exchange for support from the Greens, the Government also agreed to reduce the percentage of superannuation backpackers forfeited when they leave Australia from 95 to 65 per cent.
  • Backpacker tax of 15 per cent in place from 1/1/17
  • October 2019 – Backpacker tax ruled illegal by court
  • November 2019 – The Australian Tax Office (ATO) appeals against a federal court ruling that Australia’s backpacker tax is discriminatory.

Backpacker Tax Appeal

The Australian Tax Office (ATO) has appealed against a federal court ruling that Australia’s backpacker tax is discriminatory.

“Working holiday makers who may potentially be entitled to a refund are encouraged to wait until the appeal has been decided before seeking a refund, amending their return or objecting” according to the ATO website.

No changes will be made to the tax until the appeals process has concluded.

You can signup now to receive notification when the appeal has been completed and to find out if you are able to make a claim.

The Backpacker Tax has been ruled invalid by Australian Court

In a landmark decision, the Federal Court in Brisbane has ruled that the controversial Backpacker Tax cannot lawfully be applied to citizens of the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey.

On Wednesday 30 October 2019, the Court found that the tax breached non-discrimination clauses which are built into tax treaties that Australia has signed with each of these eight countries.

The Backpacker Tax was introduced in January 2017. The law imposed a higher rate of income tax on backpackers who entered Australia on a 417 or 462 Working Holiday Visas.

In short, the tax-free threshold of $18,200 that applied to working holidaymakers was replaced with a 15% tax rate on all income up to $37,000.

As a result, backpackers were taxed at a higher rate than Australian residents.

However, Justice Logan of the Federal Court in Brisbane has ruled the Backpacker Tax invalid.

The legal action against the Backpacker Tax was initiated by TaxBack on behalf of working holidaymakers from the eight countries.

Tax treaties

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.

TaxBack CEO, Joanna Murphy, welcomed the Court decision, saying it validated important protections for foreign citizens who choose to visit Australia on a working holiday.

“We’re delighted that the Court has accepted our argument and look forward to the Government restoring the previous, and fairer, taxation arrangements that applied to holiday workers.
“In our view it was very clear, when the tax was introduced in 2017, that it discriminated against foreign workers and breached several international tax agreements,” she said.

The judge’s ruling could set a precedent going forward as it is highly unusual for a country to have different tax regimes for countries from similar territories.

The Australian Court has decided that any backpacker who spends 10 months in Australia will be treated as a resident for tax purposes. It is likely that this will account for the majority of backpackers that visit Australia.

How does the Backpacker Tax affect me?

If you’re a backpacker currently in Australia, or someone who has previously worked in Australia on a working holiday visa, you are probably wondering what all this means.

Let’s look at some scenarios;

If you’re from one of the following countries; USA, UK, Germany, Finland, Chile, Japan, Norway or Turkey – there is good news for you!

The previous tax rate (Backpacker tax) has been ruled invalid and will no longer apply to you.

This means you could be entitled to a substantial tax refund.

If you have worked in Australia during the years 2017 – 2019 and have already filed a tax return, TaxBack will be happy to investigate if you are due a larger tax refund than you previously received.

Alternatively, if you have just began working in Australia, you should notice a different tax rate being applied to your wages. And as a knock on effect, it is likely that you will have a larger tax refund waiting for you at tax time!

However, if you are from a country outside of the 8 listed above; it’s not all bad news. TaxBack are still in talks with the court and the ATO and we are anticipating further developments soon.

In the meantime, you can claim a range of different expenses on your Australian tax-filing application and it is likely that you will have an income tax refund waiting for you.

Of course, we can’t forget about Superannuation either! You can apply for your Superannuation refund with TaxBack and the average amount our customers receive is $1,908 AUD.

Great news

The ruling is undoubtedly great news for backpackers.

Thousands of backpackers who have worked in Australia over the last three years will likely be entitled to significantly larger tax refunds.

Backpackers can apply for their maximum legal tax refund online with TaxBack here.

And backpackers who have previously claimed an Australian tax refund can sign up here with TaxBack to investigate whether they are entitled to an increased refund.