Advertisement

Taxation – United Kingdom convention

In the High Court decision of Addy v Commissioner of Taxation [2021] HCA 34 (3 November 2021), the High Court was required to determine whether Part III, Schedule 7 of the Income Tax Rates Act 1986 (Cth) (Rates Act) breached an article of a convention between Australia and the United Kingdom.

The breach in question was of article 25(1) of the ‘Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland, for the avoidance of double taxation and prevention of fiscal evasion, with respect to taxes on income and on capital gains‘ (United Kingdom Convention).

A new tax rate was introduced in December 2016 for people holding working holiday visas. Part III, Schedule 7 of the Rates Act applied a flat tax rate of 15% to the first $37,000 of a person’s working holiday taxable income, with a maximum tax liability of $5500.

But, under Part I, Schedule 7 of the Rates Act, the taxable burden for an Australian national for taxable income from the same source (and over the same period) was less – they were entitled to a tax-free threshold for the first $18,200 and were thereafter taxed at 19% up to $37,000, with a maximum tax liability of $3572.

Article 25(1) of the United Kingdom Convention provides that nationals of the United Kingdom shall not be subjected in Australia to “other or more burdensome” taxation than is imposed on Australian nationals “in the same circumstances, in particular with respect to residence”.

Ms Addy is a national of the United Kingdom. During the 2017 taxable year Ms Addy derived taxable income working in casual employment in Australia on a working holiday visa. The Commissioner of Taxation (Commissioner) applied Part III of Schedule 7 of the Rates Act to Ms Addy’s assessable income. Ms Addy objected.

At first instance the primary judge held that Part III of Schedule 7 did breach article 25(1). The Commissioner successfully appealed to the Full Court of the Federal Court.

Derrington and Steward JJ, in separate judgments, considered that Part III of Schedule 7 breached article 25(1) because the holding of a particular type of visa was not necessarily bound to nationality. Davies J, in dissent, held that article 25(1) was infringed because a person’s visa status could not be divorced from the person’s nationality.

The High Court (Keifel CJ, Gageler, Gordon, Edelman and Gleeson JJ) unanimously agreed with Davies J. In reaching this conclusion the High Court observed (at [23]) that “international instruments should be interpreted in a more liberal manner than would be adopted if the court was required to construe exclusively domestic legislation”.

The High Court considered (at [24]) that article 25(1) required a comparison between a national of the United Kingdom and a national of Australia who is “in the same circumstances, in particular with respect to residence”.

The Commissioner tried to argue that a comparison was not possible because an Australian national cannot hold a working holiday visa. The High Court (at [30]) roundly rejected this argument.

The High Court held (at [31]) that Part III of Schedule 7 imposed a more burdensome taxation on those holding working holiday visas – in breach of the United Kingdom Convention for nationals of the United Kingdom – and allowed Addy’s appeal.

Dr Michelle Sharpe is a Victorian barrister practicing in general commercial, real property, disciplinary and regulatory law, 03 9225 8722, email msharpe@vicbar.com.au. The full version of these judgments can be found at austlii.edu.au.

Share this article

Leave a Reply

Your email address will not be published.

Search by keyword