Backpackers are already tax avoiders

There are concerns about the “backpackers tax”. This was a change announced in the 2015/16 Budget that would deem people working in Australia on holiday visas to be non residents for tax. As a result they would be taxed at 32.5% from the first dollar they earned, rather than being able to apply the tax free threshold of $18,200.

But what no one seems to want to engage with is that these backpackers have been, are already, and will be tomorrow, non resident under the current law. Without any change in the law almost everyone of these backpackers should already be paying tax like a non resident.

Back in early 2015 there were three test cases that considered if backpackers on working holiday visas were tax residents. As they don’t have a domicle in Australia and have no long lasting connection with Australia, the only hope for these taxpayers was that they could pass the “183 day” test of residency.

In all three cases the AAT found they were not residents (Clemens and Commissioner of Taxation [2015] AATA 124, Jaczenko and Commissioner of Taxation [2015] AATA 125, Koustrup and Commissioner of Taxation [2015] AATA 126)

Each stayed for more than 183 days but as none had a “usual place of abode in Australia” as required in the 183 day test (which of course they did not as they were backpacker), they were not residents and were subject to the non resident tax rates of 32.5% from the first dollar with no tax free threshold.

Therefore, there is no need to introduce a backpackers test. The Commissioner should apply the law as interpreted by the Courts and start taxing backpackers on working holiday visas as non residents! Yes I know the AAT is not a Court so maybe they should fund an appeal to the Federal Court but I understand why he did not fund an appeal as the Government had just announced they were going to remove any doubt by changing the law. I guarantee the Federal Court will uphold the decision of the AAT (note that the decision in the AAT was made by Professor R Deutsch, who probably wrote the tax textbook you have sitting on your shelf… What do you mean you don’t have tax textbooks on your shelf?)

Once again, journalist just accepting the word of lobbyists…

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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