Since 2017, the 'backpacker tax' has taxed the first dollar of income a backpacker earns in Australia at the working holiday maker tax rate of 15% up to $45,000 for 2020-21 and later income years.

In this case, Catherine Addy, a UK national working in Australia since 2015, contested her 2017 amended income tax assessment which imposed the backpacker tax on the grounds that it contravened the Double Tax Agreement (DTA) with the United Kingdom. Article 25(1) of the DTA seeks to ensure that nationals of the UK are not subject to "other or more burdensome" taxation than is imposed on Australian nationals "in the same circumstances, in particular with respect to residence".

The High Court overturned the Federal Court's decision and found that the backpacker tax is inconsistent with the non-discrimination clause in the UK DTA. Non-discrimination clauses that are similar to the one in the UK DTA can also be found in the DTAs with Chile, Finland, Japan, Norway, Turkey, Germany and Israel.

So, what does this mean?

Some individuals who have been taxed under the backpacker tax rules may be able to obtain a tax refund from the ATO. However, the decision only impacts those classified as an Australian tax resident, and is only likely to be relevant to individuals who are a citizen/national of a country that has a DTA with Australia containing a non-discrimination clause similar to the UK DTA.