The High Court of Australia found on Wednesday that the higher tax rate for working holiday makers breached a treaty with the UK and was discriminatory.
In December 2016, the Australian Parliament established a new tax rate applicable to persons holding working holiday visas, added to the Income Tax Rates Acts 1986. This meant that individuals were entitled to a tax-free threshold for the first AUD 19,200 and then taxed 19 percent up to AUD 37,000, a maximum tax liability of AUD 3,572.
The United Kingdom Convention is an agreement that was signed by Australia and the UK in August 2003, which has been entered into force in both the UK and Australian domestic law. According to article 25(1), UK nationals shall not be subjected to “other or more burdensome” taxation than is imposed on Australian nationals “in the same circumstances, in particular with respect to residence.”
In December 2017, Catherine Victoria Addy, the claimant, was issued an amended notice of assessment for the same income year. She objected to the assessment on grounds that it contravened Article 25(1) of the Convention. This was disallowed as the Commissioner found that she was “an Australian resident for taxation purposes during the 2017 [income year]” earning “working holiday taxable income.”
The main issue before the court was whether Pt III of Sch 7 to the Rates Act, which the Commissioner hoped to tax Addy under, imposed an unjustifiably more burdensome taxation requirement than had been imposed on an Australian national in the same circumstances. The court established that on an objective basis, this was indeed the case.
The court deemed that under Article 25(1), a comparison had to be made between a UK national and a hypothetical Australian taxpayer in the same circumstances. If it were concluded that the tax burden imposed was higher for Addy on the grounds of her nationality, then Article 25(1) would be deemed to prevent excess taxation.
The court found that Addy had been discriminated against and that her more burdensome taxation depended on her not being an Australian national, violating Article 25(1).
