Thus, working holiday makers are taxed at a higher rate on the first $37,000 than residents, because the holiday makers do not get the benefit of the Australian tax-free threshold ($18,200 for 2019–2020).
The Federal Court answered both of these questions were answered in the affirmative. Due to her lack of transience during her stay in Australia, Ms Addy was found to be an Australian resident for tax purposes. Following on from that, the Court also found that the DTA prevented Ms Addy from being taxed at the higher working holiday tax rate.
The practical significance of this decision seems quite limited. Firstly, the individual would have to be on a specific working holiday visa for the tax to apply. Secondly, most individuals on that visa would not be tax residents due to the transient nature of their stay. For example, another recent case involved a United States citizen who during her stay in Australia worked in more than one city, moved houses relatively frequently and travelled in Australia quite extensively, and thus was not found to be a resident for tax purposes. Finally, not all DTAs have a non-discrimination clause such as the one between Australia and the United Kingdom; hence, a working holiday maker from a country lacking a DTA, or having a DTA without an anti-discrimination provision with Australia, would still be taxed at the working holiday rate even if they are found to be tax residents.
According to analysis from the ATO, the decision would only apply to working holiday makers from Chile, Finland, Germany, Japan, Norway, Turkey and the United Kingdom. In 2018 only around 36% of the total number of working holiday maker visas were issued to individuals from these countries. Therefore, this decision will only affect a small percentage of individuals, of which an even smaller proportion would be considered Australia tax residents. The ATO has noted that it is still considering the decision of the Court and may appeal, so stay tuned.
If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 14 Russell Street Toowoomba.