Harmers was successful at first instance in the Federal Court of Australia, with the Court finding that the tax in question was discriminatory and thus invalid.  The outcome was overturned by the Full Court of the Federal Court of Australia. Harmers was then successful in obtaining special leave to appeal in the High Court of Australia.

The principal question for determination by the High Court was whether the Backpacker Tax contravened the Convention between Australia and the United Kingdom for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (“the Convention”) by imposing a more burdensome taxation requirement on Ms Addy, a national of the United Kingdom, than that imposed on an Australian national in the same circumstances.

Article 25(1) of the Convention provides:

“Nationals of a Contracting State [the United Kingdom] shall not be subjected in the other Contracting State [Australia] to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State [Australia] in the same circumstances, in particular with respect to residence, are or may be subjected.”

The High Court unanimously held that the Backpacker Tax contravened Act 25(1) of the Convention, Significantly, this was because an Australian national in the same circumstances as Ms Addy deriving taxable income from the same source during the same period would have been taxed at a lower rate than Ms Addy.

This landmark decision is significant and will affect thousands of backpackers who come to Australia each year on subclass 417/462 working holiday visas. The backpacker tax was estimated to be worth c.$150million per year to the Commonwealth.

For more information or if you require advice and assistance regarding the above, please contact our Harmers team on +61 2 9267 4322.