Will Irish in Australia be eligible for ‘backpacker tax’ rebate?

Q&A: Court ruled this week that thousands of backpackers will be entitled to refund, but the Irish are not included – yet

Irish tax accounting firm Taxback.com won a landmark victory in Australia against the country’s so-called “backpacker tax” this week. The federal court in Brisbane ruled on Wednesday that the controversial tax could not lawfully be applied to citizens of eight countries – the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey – as it violated double taxation agreements Australia has with these specific countries. Ireland was not included. Taxback.com say while Irish travellers will not benefit for now, the ruling makes the tax “unworkable” and may force the Australian tax authorities to review the measure in its entirety.

If the ruling is upheld following any appeal and the tax deemed illegal, backpackers hit by the charge over the past three years could be in line for a rebate of up to 2,730 Australian dollars (€1,688) for each year worked. The Australian government has yet to signal if it will appeal the ruling. There are estimated to be up to 75,000 Irish nationals on working holiday visas in Australia in any given year. We asked Taxback.com to explain what Irish backpackers can expect next:

What is ‘backpacker tax’?

The backpacker tax removed the tax-free threshold of $18,200 (€11,244) from backpackers who were in Australia on a 417 Working Holiday Visa. Instead, the tax-free threshold was replaced with a 15 per cent tax rate on all income earned up to $37,000. Higher tax rates, in line with ordinary Australian income tax rates, applied to amounts earned above $37,000. In short, the changes made meant that backpackers (people on certain working holiday visas) would now be charged higher tax rates than Australian residents.

When was it introduced?

The tax came into effect in January 2017.

How much tax on average would an Irish backpacker pay on their earnings in Australia?

A total of 15 per cent tax rate on all income up to $37,000 and higher rates in line with ordinary income tax rates on anything above this amount. Prior to these changes an Irish backpacker could earn $18,200 tax free, after which a tax of 19 per cent would apply on earnings from $18,201 up to $37,000. Anything earned above this amount tax would be applied at 32.5 per cent on earnings up to $87,000.

Why did Taxback.com take this case?

Joanna Murphy, chief executive of Taxback.com, said: "In our view it was very clear when the tax was introduced in 2017 that it discriminated against foreign workers and breached several international tax agreements."

What does the landmark ruling in the case on Wednesday mean for backpackers?

Tens of thousands of backpackers from the eight countries impacted by the case who have worked in Australia over the last three years will now be entitled to significantly larger tax refunds. Talks are ongoing between Taxback.com, the court and the Australian Tax Office (ATO) to establish the final details of how the ruling will affect the future taxation of all backpackers. It is anticipated that further developments on this case will be announced in the coming weeks.

Why wasn’t Ireland included in the case?

Taxback.com took a test case of countries whose double taxation treaty provides for anti-discrimination clause - namely the UK, the US, Germany, Finland, Chile, Japan, Norway and Turkey. There is no such clause in Ireland’s taxation agreement with Australia. Having achieved agreement on these eight treaty countries by Justice Logan, Taxback.com are hopeful it will encourage the ATO to reconsider whether the backpacker tax is operable at all for any jurisdiction.

What could it potentially mean for Irish backpackers?

As Justice John Logan reviews in more detail each of the countries, this judgment could be extended out to include Ireland. This case could set a precedent  as it is highly unusual for a country to have different tax regimes for countries from similar territories. Taxback.com say that based on legal advice from their counsel in Australia there is now a reasonable expectation that in due course that Irish backpackers will benefit from this. Ms Murphy said:

“This is a positive outcome for Irish backpackers because, while the judgment itself does not directly impact Irish backpackers, it has opened up the possibility of changes to the tax treatment of working holiday visa holders - before this case there wasn’t any indication that that could or would happen. We believe that the ATO will now have to consider the position of all working holiday visa holders in terms of taxation. This case may act as a catalyst for changes to be made across the board. Ireland has a long and established history of people travelling to Australia for the backpacker adventure, for thousands of people, this has been a rite of passage. It is our hope that Wednesday’s verdict will prompt the ATO to make changes so that the tax treatment of workers of all nationalities is fair and equitable.”

How much money could an Irish backpacker potentially receive back?

The average Australian tax refund a Taxback.com customer receives is $2,600 (€1,607).