The Australian Tax Office (ATO) has abandoned the so-called 'backpacker tax' introduced in 2016, after the High Court of Australia found it to be in clear breach of the country's tax treaty obligations.

The tax, officially known as the working holiday tax rate, came into force as Part III of Schedule 7 of the Income Tax Rates Act as amended. It charged 15 per cent tax on the first AUD37,000 of taxable income received by holders of a working holiday visa, up to a maximum of AUD5,550. In contrast, Australian-resident taxpayers had an AUD18,200 tax-free allowance and a 19 per cent charge on income above that level, up to a maximum of AUD3,572.

This was challenged by UK citizen Catherine Addy, who had earned AUD26,576 through casual employment in Australia during the 2016/17 tax year. She argued that she could not be required to pay higher taxes than Australian nationals in the same circumstances, because of the non-discrimination article 25(1) of the UK-Australia double tax agreement (DTA).

She won her first appeal in the Federal Court of Australia in 2019; however, in 2020 a full panel of the same court overturned that judgment. The majority ruled that she was being charged extra tax because of the type of visa she held and not because of her nationality...