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11 Nov 2021 Cases Corner

Case summary

Addy v Commissioner of Taxation [2021] HCA 34

High Court of Australia, Kiefel CJ, Gageler, Gordon, Edelman & Gleeson JJ

Date: 3 November 2021, Canberra

Decision: in favour of the taxpayer

Representation for the Taxpayer: Counsel (Mr John Hyde Page, instructed by Harmers Workplace Lawyers)

Representation for the Commissioner: Counsel (Mr Stephen Lloyd SC with Mr Gim del Villar QC, instructed by Australian Government Solicitor)

Synopsis of decision

A British national who was an Australian tax resident was found to be discriminated against through the application of the ‘backpacker tax’, in contravention of the non-discrimination article of the double tax agreement between Australia and the UK. 



Ms Addy (The Taxpayer) was a British national who was granted a Working Holiday (Temporary) (Class TZ) (Subclass 417) visa under the Migration Act 1958 (Cth) (working holiday visa) on 13 July 2015. She subsequently entered Australia on her working holiday visa on 20 August 2015. Between August 2015 and May 2017, the Taxpayer primarily lived and worked in Australia on her working holiday visa. During the 2016–17 income year, she derived taxable income of $26,576 through casual employment as a waitress in Sydney.

In December 2016, new legislation came into force under Part III of Schedule 7 of the Income Tax Rates Act 1986 (Cth) (Rates Act), that defined the tax rates which apply to an individual’s working holiday taxable income (the backpacker tax). Relevantly, income derived by holders of a working holiday visa were taxed at the time at 15% on the first $37,000 of their taxable income, amounting to a maximum tax liability of $5,550. In contrast, an Australian resident taxpayer enjoyed a tax-free threshold on the first $18,200 of taxable income and was then taxed at the rate of 19% on any additional taxable income up to $37,000[1], resulting in a maximum possible tax liability of $3,572.

However, the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (the UK DTA) contains a clause under Article 25(1) which prevents UK nationals from being subjected to higher tax burdens compared to Australian nationals ‘in the same circumstances, in particular with respect to residence’ (the non-discrimination article).

On 20 December 2021, the Commissioner of Taxation (the Commissioner or the ATO) issued the Taxpayer with a notice of amended assessment relating to the 2016–17 income year. In this assessment, the Commissioner applied the backpacker tax to the Taxpayer’s income derived from 1 January 2017.

Litigation history


The Taxpayer objected to the Commissioner’s amended assessment on the basis that the increased tax burden of the backpacker tax contravened the non-discrimination article of the UK DTA. The Commissioner disallowed the Taxpayer’s objection, on the grounds that she was an Australian tax resident and was a working holiday maker deriving working holiday taxable income as defined by the Rates Act. The Commissioner did not agree with the Taxpayer’s contention that the application of the backpacker tax to her taxable income contravened the non-discrimination clause of the UK DTA.

Appeal to Federal Court

The Taxpayer appealed the Commissioner’s decision to the Federal Court[2]. Logan J allowed the Taxpayer’s appeal, determining that the non-discrimination article of the UK DTA applied, so that the Taxpayer should be taxed as an Australian national and not under the backpacker tax. His Honour further held that the backpacker tax represented a disguised form of discrimination based on nationality.

Appeal to Full Federal Court

The Commissioner then appealed the primary judge’s decision to the Full Federal Court[3], with the majority allowing his appeal. Their Honours held that the Taxpayer’s liability to pay tax under the backpacker tax was based on the type of visa she held and not her nationality. Dorrington J ruled that the taxpayer held the working holiday visa by choice and could have applied for a different visa. Thus, there was no necessary connection between her nationality and her liability to pay the backpacker tax.

Appeal to High Court

Finally, the Taxpayer sought and was granted special leave to appeal the Full Federal Court’s decision to the High Court.


In favour of the taxpayer

The High Court unanimously allowed the Taxpayer’s appeal, overturning the decision of the Full Federal Court. Their Honours drew a direct comparison between the Taxpayer as a UK national and a hypothetical Australian national, concluding that the Taxpayer was subjected to a more burdensome tax liability. This situation enlivened the non-discrimination clause of the UK DTA, providing the taxpayer with relief from the higher tax liability under the backpacker tax.

In reaching this conclusion, their Honours held that the Commissioner was incorrect in drawing the comparison between a holder and non-holder of a working holiday visa for the purposes of applying the non-discrimination clause of the UK DTA. Their Honours stated at paragraph [28]:

There is a further difficulty with the Commissioner’s submission that no comparison is possible under Article 25(1). The difficulty is that, consistent with the text, context, object and purpose of Article 25(1), the relevant comparator is the hypothetical taxpayer in the same circumstances apart from the criterion on which the claim of discriminatory taxation is based. The phrase ‘in the same circumstances’ means in the same circumstances apart from those circumstances attached to the prohibited basis for discriminatory taxation. Here, that is visa status, a characteristic which depends on nationality – a person not being an Australian national – the very attribute protected by Article 25(1).

Limitation of the High Court’s decision

The High Court’s judgment gives further clarity and certainty to taxpayers in a similar situation to the Taxpayer. This is relevant to working holiday visa holders who earn income in Australia and are regarded as Australian residents for tax purposes. Where the relevant double tax agreement contains an equivalent article to the non-discrimination article in the UK DTA, they may be subject to the lower tax rates imposed on Australian nationals, rather than the rates imposed under the backpacker tax. 

However, this decision does not automatically mean that all backpackers in Australia are treated as Australian residents for tax purposes. In this case, the High Court concluded that the Taxpayer was an Australian tax resident based on the 183-day test and her specific circumstances. Each individual backpacker’s situation is unique and their tax residency should be based on their specific facts and circumstances.

Taxpayers should be wary in assuming that a non-discrimination clause in a double tax agreement immediately grants them relief from the backpacker tax. As the High Court stated at paragraph [9]:

The principal question before this Court was whether, in contravention of Article 25(1) of the United Kingdom convention, Part III of Schedule 7 to the Rates Act imposed 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. That question is ultimately a question of domestic law and, as with the application of any domestic taxing law, the question is specific to a taxpayer in a specific income year and the answer may vary within any income year.

In this case, the comparison to be drawn was to be between a holder and non-holder of a working holiday visa, both of whom are Australian tax residents. In the case of comparing a holder and non-holder of a working holiday visa, both of whom are foreign tax residents, the outcome may differ.

The outcome of such an analysis may be affected by the following:

  • The nationality of the taxpayer
  • The terms of the relevant double tax agreement
  • The individual’s taxable income
  • The individual’s tax residency status

Further, the High Court’s decision applies only those who are a resident of Australia for tax purposes and who are working holiday makers from Chile, Finland, Germany, Japan, Norway, Turkey and the United Kingdom (about one-third of the total number of people issued with Working Holiday Maker visas in 2018 were from those countries).

It will be interesting to see the effect the High Court’s decision has on the design of the planned 10 new and updated tax treaties — including India, Luxembourg, Iceland, Greece, Portugal and Slovenia. We will be sharing a blog very soon that discusses the implications of the High Court’s decision.


[1]    The threshold up to which the 15% tax rate applies increased from $37,000 to $45,000 from the 2020–21 and later income years. The balance of the taxable income is taxed at ordinary rates.

[2]    See Addy v FCT [2019] FCA 1768.

[3]    See FCT v Addy [2020] FCAFC 135.


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