A recent law on foreign nationals working in Australia has been the subject of significant legal dispute in recent months.
In 2017, following a recommendation from the ATO, the Australian government established a controversial 15% tax rate on 417 and 462 visa holders. This tax imposition massively affected working holiday visitors from 8 countries: Chile, Finland, Germany, Japan, Norway, Turkey, the US, and the UK.
More than one-third of working holidaymakers are from the aforementioned countries, meaning that this decision from the ATO left a significant dent in Australia’s reputation as a working holiday destination. Due to the imposed tax, non-Australian working visitors have been required to pay a 15% tax on all of their income under $18,200 per year. Australians with similar earnings, and those coming from other countries, did not face similar treatment.
The so-called “backpacker tax” was later ruled illegal by the Federal Court of Australia this October, as it was seen as “a disguised form of discrimination based on nationality.”
However, the Australian Tax Office has recently appealed the decision. The ATO announced in its appeal statement that employers should continue to impose the 15% tax.
“Employer obligations have not changed and employers should apply the PAYG withholding tax rate in accordance with their employees’ Tax File Number declaration,” said the ATO.
The ATO had also stated that around 5% of the taxed holiday workers would be entitled to a tax return if their appeal turns out ineffective.
If the initial ruling of the Federal Court holds, and the backpacker tax remains illegal, tax refunds with a total value of hundreds of millions of dollars could be paid back to the working holidaymakers. Despite this possibility, no refunds will be paid until the appeal decision is clear.