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Unpacking the tax rules for backpackers

Backpackers, as prospective employers Chelsea and Hong discovered, come with their own set of income tax issues. In this sponsored post, chartered accountant GAIL FREEMAN offers some help.  

CHELSEA and Hong are looking to employ some backpackers, once they can enter the country again, but are concerned that their prospective workers’ tax position is not straightforward.

I started the meeting with the news that the decision on this very topic  was handed down by the High Court on November 3.

“The taxpayer was a British national who came to work in Australia in 2015,” I told them.

“In the 2017 year, she worked as a waitress under a working-holiday visa and returned home to the UK on May 1, 2017.

“It was agreed that she was an Australian tax resident. She was taxed at the backpacker rates that applied at the time.

Gail Freeman.

“This meant that she was charged tax of $3986 whereas if she had been an Australian resident she would have been charged tax of $1591 on the same income. There is a double tax agreement in place between Australia and the UK, which has a clause in it to the effect that a UK national should not be subjected to a higher tax outcome than an Australian national in the same circumstances.

“Interestingly enough, a similar clause only appears in the double tax agreements between Chile, Finland, Japan, Norway, Turkey, the UK and Israel.

“This case has been heard previously in the Federal Court, the Full Federal Court and, in early November, the High Court decided that the taxpayer was being discriminated against and that the double tax agreement had been breached.

“So this changes the situation and means that when your backpackers get here the position may not be clear. We are waiting for the Australian Taxation Office to provide a statement on this decision.”

Chelsea was keen to know what it meant for her and Hong.

“What it means for you is that if you employ a backpacker who is an Australian resident and they come from Chile, Finland, Japan, Norway, Turkey, the UK or Israel then you tax them at normal rates,” I said.

“To be an Australian resident they need to be in Australia continuously for more than 183 days in the income year. This is not the same as a resident for immigration purposes.

“However, the current position is that if you employ a non-resident backpacker or they come from any country other than those mentioned, the backpacker tax will apply unless the ATO issues a ruling concerning tax residence.

“Therefore, I recommend that if you do employ any backpackers, you contact me for guidance on their tax position so you’ll know how much tax you need to deduct and under which tax regime. I know this is messy but we should hear from the ATO soon so that I can provide you with clarity.”

Hong said this was trickier than they’d thought and that I could expect their call early next year.

If you require any information on tax rates or tax residence contact the friendly team at Gail Freeman & Co Pty Ltd on 6295 2844, email or visit



This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser.

Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.

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