The High Court has decided: no discrimination for working holiday makers

Broadly, WHMs who are in Australia for less than 183 days in a tax year are considered foreign tax residents, and subject to tax from the first dollar of income they earn in Australia. Uncertainty existed historically when WHMs spent 183 days or more in Australia as those WHMs were required to determine their Australian tax residency.

In Addy’s case, the Australian tax offce (ATO) assessed Addy, a WHM from the UK, to be an Australian tax resident. The ATO sought to tax Addy based on the special WHM tax rates that are specifically applicable to WHMs. These rates are lower than the tax rates imposed on foreign residents, whilst higher than the effective tax rates imposed on ordinary tax residents.

The High Court ruled that imposing WHM tax rates on Addy contravenes Article 25(1) of the Australia UK Double Tax Agreement (DTA) which prevents Australia from imposing a more burdensome taxation on Addy owing to her UK nationality. The High Court also held that a WHM who is present in Australia for 183 days or more in a tax year would prima facie be a tax resident, unless the ATO determines otherwise.

Hence, WHMs who spend 183 days or more in Australia in a tax year now have more certainty with respect to their tax residency status, and if these WHMs are from UK (or other countries with a similar DTA), they will be subject to the same concessional tax rates that Australian nationals enjoy. However, this means it may be more diffcult for WHMs to obtain foreign tax resident status going forward.

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