The backpacker tax is the flat rate applied to subclass 417 and 462 income: 15% on the first $45,000, with no tax free threshold. It has been that rate since 1 January 2017.
What is the rate today?
Fifteen per cent from the first dollar up to $45,000, then the foreign resident scale above it. Both visa subclasses are treated identically, and almost every working holiday maker earns inside the first bracket.
The absence of a tax free threshold is what separates this from ordinary Australian taxation. A resident pays nothing on the first $18,200; a working holiday maker pays 15% on it. That single difference is worth about $2,730 a year to anyone it applies to.
- 15% on income up to $45,000
- 30% from $45,001 to $135,000
- 37% from $135,001 to $190,000
- 45% above $190,000
What was the position before 2017?
Residency decided everything. A working holiday maker assessed as an Australian tax resident paid ordinary resident rates with the $18,200 threshold; one assessed as a non-resident paid 32.5% from the first dollar. Two people doing identical work could face very different bills, and which side they fell on was a judgement, contested then for the same reasons it is contested now.
Many backpackers did qualify as residents, and the government regarded the resulting low tax bills as an unintended outcome rather than a policy. That view produced the 2016 proposal.
How did the 2017 rate come about?
As a compromise after a fight. The 2016 proposal was to tax all working holiday maker income at 32.5% from the first dollar by deeming every backpacker a non-resident. Agriculture and tourism objected immediately, because harvest labour depends on people for whom that rate would have changed the arithmetic of coming at all.
The settlement was the 15% rate from 1 January 2017. The same package raised the Departing Australia Superannuation Payment rate for working holiday makers from 35% to 65%, leaving 35% in place for other temporary visa holders such as students. The concession on wages was paid for on the super side, and it still is.
What did the High Court decide in Addy?
That the 15% rate could not lawfully be applied to the particular taxpayer before it. In *Addy v Commissioner of Taxation* [2021] HCA 34 the High Court found for the taxpayer on grounds turning on how an individual's whole year is assessed, which is why the decision cannot be read as a general rule about backpacker tax.
The taxpayer succeeded at first instance in 2019, lost in the Full Federal Court, and won in the High Court in 2021. The legislation was not amended afterwards, so the position stands as the court left it and is applied case by case rather than through a change in the rate.
Who does Addy actually help?
Fewer people than the headlines suggested, and rarely the people who assume it covers them. Whether the decision reaches a particular working holiday maker depends on an assessment of their whole year, and that assessment goes wrong in both directions when people attempt it themselves.
The question is a judgement about your own circumstances, turning on details most people never think to check, and neither the rate table nor the case name can answer it. A position is taken only after the year has been gone through in full.
What does any of this change on your return?
For most people, nothing. Most working holiday makers are not Australian tax residents, the 15% rate applies, and the refund comes from over-withholding and the Medicare levy exemption rather than from *Addy*.
Where it does apply it changes things substantially, in ways that differ from person to person for reasons that are not obvious from the outside. That is the branch worth having checked before a tax return is lodged, because amending later is harder than getting it right once, and the position taken has to be one that can be defended.