Australia's backpacker tax: a problem child in Australia's residence-based taxation system

This article critically appraises the contentious impact of Australia's Backpacker Tax (ABT), arguing that the ABT undermines the function of Australia's residence-based taxation, by compromising the tax policy objectives of equity, efficiency and simplicity in Australia's personal income tax system. The controversy remains as the ABT taxes Australian working holiday makers, irrespective of their tax residence status. This legislative change has had a problematic effect on Australian working holiday makers, as unforeseen legal complexities and a chain of inequitable results have developed in Australia's residence-based taxation system. This has been highlighted in recent tax developments such as the Australian High Court decision in Addy v Commissioner of Taxation and Australia's ‘post-Addy’ position which limits the implications of this decision. If the proposed rewrite of Australia's individual tax residence rules is enacted, the inequities, inefficiencies and complexities created by the ABT will likely exacerbate as most, if not all, working holiday makers will qualify as Australian tax residents. By critically examining these recent tax developments, a significant contribution of this article is to inform on the extensive tax challenges of the ABT and advocate for a substantial reform or repeal of the tax. More broadly, this article promotes further discussion of more equitable alternative reforms of Australia's individual tax residence rules, which serves as another option to address the challenges of the ABT.