Addy v Commissioner of Taxation

[2021] HCATrans 111

[2021] HCATrans 111

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S25 of 2021

B e t w e e n -

CATHERINE VICTORIA ADDY

Appellant

and

COMMISSIONER OF TAXATION

Respondent

KIEFEL CJ
GAGELER J
GORDON J
EDELMAN J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 24 JUNE 2021, AT 9.45 AM

Copyright in the High Court of Australia

MR T.H.J. HYDE PAGE:   If it please the Court, I appear for the appellant.  (instructed by Harmers Workplace Lawyers)

MR S.B. LLOYD, SC:   May it please the Court, I appear with MR G.J.D DEL VILLAR, QC for the Commissioner of Taxation.  (instructed by Australian Government Solicitor)

KIEFEL CJ:   Yes, Mr Hyde Page.  I take it you will not be requiring two hours on your original estimate?

MR HYDE PAGE:   That is correct, your Honour.

KIEFEL CJ:   Thank you.

MR HYDE PAGE:   If it please the Court.  The appellant is a British national who was a tax resident of Australia during the 2017 tax year and the relief that the appellant seeks in this case is to be liable for tax at the same rates that apply to an Australian citizen who, like the appellant, was a tax resident of Australia in accordance with the tax legislation. 

The treatment the appellant seeks is set out in Part I of Schedule 7 of the Income Tax Rates Act which is at page 18 of the joint bundle of authorities and the pith of Part 1 is a table of rates that applies to persons who are tax residents of Australia, with residence of Australia being the qualifying characteristic for taxation under the rates in Part 1.

By contrast, the tax treatment for which the appellant is theoretically liable and the treatment that the respondent seeks to sustain in this case is in Part III of Schedule 7. Part III of Schedule 7 has the effect of imposing tax on income that is earnt while the taxpayer holds a working holiday visa. In the present case, the visa in question was a subclass 417 visa, which the appellant held during her time in Australia.

The simple facts of the appellant being in Australia and earning income while she was in Australia will always result in a tax liability under the Australian tax legislation. What is relevant in this case is that the harsher treatment that applies under Part III of Schedule 7 is one that arises because of the fact of holding a visa and an Australian visa is something that can only be held by persons who are not citizens of Australia. That arises from section 29 of the Migration Act - only non‑citizens can seek and hold a visa.It is the fact of the visa that causes the difference in tax treatment.

Commenting broadly about the difference between Part I and Part III of Schedule 7, the difference between the two different scales of rates is such that an Australian resident who holds a working holiday visa will always be liable to pay more tax under Part III than under Part I.

The two sets of tax rates become uniform on every dollar that is earnt by an Australian tax resident in excess of $37,000 – it is perhaps the case that only a limited number of people would fall into that category.  Within the bracket of income between 0 and $37,000, the effect of the prima facie rates is that a person who holds a visa will always end up paying more than a person who does not hold one of the working holiday visas.

If I can turn then to the provision that is critical in this case, which appears at page 6 of the appellant’s submission in‑chief, as well as page 53 of the joint bundle of authorities – and that is Article 25 of the double tax agreement.  In the present context it is the appellant who is a national of a contracting State, in terms of the opening words of the provision.  So, on an ordinary reading, and making allowances for the particular facts, Article 25 says, a national of the United Kingdom – somebody such as the appellant:

shall not be subjected in the other Contracting State –

that is Australia:

to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected.

The appellant observes that particular features of the language indicate that it is very apt to apply to nationals of a foreign state who are in Australia and are tax residents of Australia under Australian law.  The aspects of the language that support this conclusion are the phrase in the “other Contracting State” and the language “same circumstances, in particular with respect to residence”.

What the appellant submits is that while the outer ambit of the provision may be a matter on which there is room for argument, what is most clear is that it is contemplated that Article 25 will offer relief to a British national who is in Australia and who has Australian tax residency.  So, the appellant position is that Catherine Addy is squarely within the letter of the legislation – or rather the provision, I should say, and the prima facie tax treatment that applies to Ms Addy should be adjusted to make it consistent with that of an Australian who was a resident and was not holding one of the relevant visa types. 

In the lower courts there was significant discussion about a range of other matters that - perhaps all of them can be described as incidents of the foreignness of Ms Addy.  Matters that received discussion were points such as the fact that Ms Addy could have applied for a different type of visa, the fact that Ms Addy was in Australia voluntarily, and the fact that as a British national it was not necessarily the case that Ms Addy would hold a working holiday visa.  That was one a number of possible outcomes. 

The appellant’s submission is that all of these observations, while strictly speaking correct, are essentially immaterial to the question of whether or not Ms Addy was a tax resident in Australia in the same substantive circumstances as an Australian who was liable for only a lesser tax treatment.  Yes, some people voluntarily come to Australia and that is a matter of choice.  That does not include all foreign nationals but, where that happens, the appellant submits it is contemplated that relief should be available. 

One of the significant questions both in the lower courts and in this Court is whether or not Ms Addy’s possession of a visa is something that disqualifies Ms Addy and makes it impossible to view Ms Addy as a person who is relevantly in the same circumstances as an Australian, in particular with respect of residence.  As I indicated earlier, it is not in dispute that an Australian cannot obtain a working holiday visa under the Migration Act and that is one characteristic of Ms Addy that is, and was, incapable of being shared by an Australian citizen.

The key to resolution of this particular issue, I would submit, is found in the principles that apply to interpretation of a treaty provision that has been adopted for the purposes of domestic legislation, and the dominant case in this area perhaps is Applicant A v Minister for Immigration (1997) 190 CLR 235, and in particular the judgment of Justice McHugh which has proven to be influential. I will summarise the key points that it is necessary to notice in this case. What Justice McHugh observed in that case ‑ ‑ ‑

EDELMAN J:   Which tab number is this?

MR HYDE PAGE:   Tab 11, your Honour, and the relevant passage is CLR 255 to 256.  What his Honour observed in those pages is that, generally speaking, treaty provisions are cast in general terms because it is anticipated and hoped that they will be adopted by a very wide variety of different countries and, for that reason, they often lack the precision that one would perhaps expect if a domestic legislature was setting out to achieve the same outcome.

What follows from this and what has been generally accepted in the authorities is that there is a need to construe treaty provisions liberally rather than with what is called “taut logical precision”.  The reason why the appellant says this is particularly apt to the present case is because the fact that an Australian cannot apply for an Australian visa is, I would submit, an example of the sort of legal technicality that, while as a matter of very strict logic might prevent a foreigner and an Australian from being in the same circumstances, is not one that should be allowed to subvert the overall purpose of the provision.

As I indicated earlier, it appears very clearly that the provision is intended to apply to foreign nationals who are in Australia and are tax residents here.  In almost every case, a foreign national who is resident in Australia will have a visa.  So is the possession of a visa something that should relevantly prevent a foreign national from being regarded as in the same circumstances?  The appellant submits that on a liberal construction, which is the appropriate type of construction, it would not prevent a foreign national from being so regarded. 

It is true that, if the Australian Parliament perhaps was seeking to achieve a similar outcome by way of legislation, it might notice such matters as the Migration Act and provide a carve‑out from the class of circumstances that might need to be the same, but that is, I would submit, something that is unrealistic when one is talking about an international agreement that it is anticipated will be adopted by a wide variety of different countries.

As I said, it is not in dispute that an Australian cannot obtain an Australian visa.  That is a quirk of section 29 of the Migration Act.  It would be, I would submit, the wrong outcome if this aspect of section 29 of the Migration Act were to preclude all foreigners who are resident in Australia from being in the same circumstances as Australians and from obtaining relief under this particular provision.

GAGELER J:   It is really a basic principle of discrimination law that you cannot take the prohibited ground of discrimination and stick it into the circumstances that you use as the comparator.  There is a lot of discussion in the anti‑discrimination literature to that effect.

MR HYDE PAGE:   That is correct, your Honour.

GAGELER J:   We are just talking about an application of that general principle here, are we not?

MR HYDE PAGE:   With respect, your Honour, I would adopt what you say.  The basis for discrimination is not something that should preclude the minority, however defined, from obtaining relief where a provision is cast in “same circumstances” language.  The appellant has referred to a number of cases from that particular stream of jurisprudence in the appellant’s reply submission.  But yes, I respectfully adopt what your Honour has said.

So that is the crux of the reason why the appellant says that the appellant’s possession of a visa should not preclude relief under Article 25 and if the appellant had its way that is probably where the argument today would end.

GORDON J:   That sounds like a good idea.

MR HYDE PAGE:   Well, your Honour, brief advocacy is always the best kind.  I will, however, need to turn to deal with a matter and a proposition that was adopted by all of the judges in the lower courts and, for that reason, deserves some discussion. 

It emerged from the lower courts with increasing prominence a suggestion that Article 25 can only apply to taxes where the discriminatory treatment is imposed on the sole basis of nationality and in the appellant’s written submissions the appellant has made all the obvious points about the incongruity of that proposition with the text of Article 25.  Article 25 refers to the qualifying characteristics of discriminatory tax as being those of otherness and being more burdensome. 

It does not refer to whether or not the tax applies on the sole basis of nationality, which in itself is a topic on which there is ample room for discussion and differences of opinion.  But the respondent says that there is this additional requirement and that Article 25 does not apply to a tax unless it is based solely on nationality.

GORDON J:   I thought your submission was that, even if that was the appropriate construction, you still succeed.

MR HYDE PAGE:   That is correct, your Honour.  The appellant’s submission is firstly that that construction is a gloss and should not be adopted but, secondly and consistently with the first instance judge and Justice Davies in dissent, the appellant should still succeed, even if that rule is adopted by the Court.

GORDON J:   Would you accept that the commentaries would tend against your argument?

MR HYDE PAGE:   Respectfully, your Honour, I would not.  Certainly the phrase “solely on the basis of nationality” appears once in the OECD commentary.  It does not appear, I would submit, with the sort of clarity and prominence that would warrant the kind of departure from the natural reading of the text that is urged upon the Court by the respondent.  I will, if I may, just turn to that commentary which is at page 747 of the joint bundle of authorities.  Your Honours, on the view most favourable to the respondent’s argument, it is possible to have full recourse to the OECD commentary.

GORDON J:   Under Article 31 or Article 32 of the Vienna Interpretation Convention?

MR HYDE PAGE:   Your Honour, the respondent says it is possible to advert to it under both, both Article 31 and Article 32.  The appellant says neither, but also that it does not particularly matter.

GORDON J:   I see.

MR HYDE PAGE:   I might comment on that in slightly more detail before addressing the question of what the OECD commentary actually says.  If I can begin with paragraph 1, paragraph 1 says that the non‑discrimination article establishes a principle that one cannot discriminate:

on the grounds of nationality ‑ ‑ ‑

EDELMAN J:   Just before you get then into discrimination, your primary submission, as I understand it, is that Article 25 is not about discrimination at all, at least not about discrimination in the strict sense in which discrimination is usually understood, which is purposive – the basis, or the purpose or the reason for acting.  As I understood your first submission, it is concerned with effect rather than purpose – that one looks to whether the effect of what is done is to treat the nationals of a contracting state in a different way from the other contracting state in particular with respect to residents where they are in the same circumstances.

MR HYDE PAGE:   Your Honour, it is true that, on the appellant view, the article is principally concerned with effect and, as we move through the OECD commentary, there are numerous references to a quality of treatment as an aspiration that underlies the non‑discrimination clause.

EDELMAN J:   What do you mean by discrimination then?  Is it discrimination in some non‑technical sense which is concerned with effect, or is it discrimination in the sense in which that concept is usually understood, which is purpose – that where you have a directed or an indirect purpose of achieving an outcome?

MR HYDE PAGE:   Your Honour, it is the sense of effect, and certainly there is no suggestion by the appellant that the introduction of what I have described as the “backpacker tax” had some nefarious, or discreditable, purpose of discriminating against foreigners.  What the appellant says is that questions of subjective motivation, and racism even – to put the matter bluntly – do not arise under the criteria and there would not really be a basis, in this case, to invoke those matters.  I mean, the backpacker tax was introduced in order to achieve and take cognisance of a variety of goals – they are not particularly controversial.

So, if I can turn then to the commentary, it commences by referring to a principle that discrimination is forbidden.  It is notable however that it does not say on the sole grounds of nationality, and then goes on to say:

the nationals of a Contracting State may not be less favourably treated . . . than nationals –

of the other State.  So, the objective is expressed in two ways.  It does not refer to nationality as a sole ground, and certainly when one looks at the concept of tax treatment and whether or not it is more or less favourable, there is scope there for looking at other sorts of criteria for the imposition of a tax. 

Now, certainly one of the main goals of this legislation is to prevent different treatment on the basis of nationality, but I would submit that it does not say here that that is all, and something quite clear is – I would submit – what would be necessary before the Court ‑ ‑ ‑ 

GORDON J:   Do you accept that each of the paragraphs in Article 25, or Article 24 of the Model Convention, deal with a particular subject matter?

MR HYDE PAGE:   Your Honour, if I can clarify, by paragraphs do you mean paragraphs in terms of the headings, or ‑ ‑ ‑ 

GORDON J:   No, I mean within Article 25 itself.  Paragraph 1’s argument is dealing with nationality.  Paragraph 2 is dealing with taxation on permanent establishments.  Paragraph 3 is dealing with taxable profits of enterprises – it has turned its mind to a particular subject matter in each of the ‑ ‑ ‑ 

MR HYDE PAGE:   Yes, I would accept that proposition, your Honour.  I only propose here to look at the commentary that relates to paragraph 1 of the article, which is the one presently in dispute.  Anyway, so if one looks at paragraph 2 of the commentary, which refers to paragraph 1 of the article, it talks about historical matters and the historical interest that the nations have had in according – it says in about the middle of the paragraph:

equality of treatment with its own nationals.

In paragraph 3 of the commentary it discusses the concept of “same circumstances” and then goes on to talk about a particular relevance of whether or not the relevant individuals share the same tax residence.  The purple passage, if I can call it that, on which my learned friend relies, is in the next paragraph.  If one looks at paragraph 4, I would suggest that it is apparent that the discussion is following on from paragraph 3, and one knows that because it says:

In applying paragraph 1, therefore, the underlying question is whether two persons who are residents of the same State are being treated differently solely by reason of having a different nationality.

So, yes, that sentence does refer to whether or not the basis for the difference is solely nationality, but that is a comment that is made in the context of discussing the importance of residency.  It appears alongside a number of other verbal formulations throughout the commentary that just refer to equal treatment ‑ ‑ ‑ 

EDELMAN J:   There is also the words “by reason of”, and in paragraph 1, the words “on the grounds of”.  That is the usual purposive language of discrimination, where it is looking at the reason for the discrimination. 

MR HYDE PAGE:   Yes.

EDELMAN J:   Well, are you going to address us on what the reason for discrimination was in Article 25, or is your submission solely based on the effect of Article 25?

MR HYDE PAGE:   Well, your Honour, I do propose to address the reason for the discrimination, yes.  The way I had intended to approach that was firstly the question of whether or not the basis for the treatment is a binding requirement that operates in tandem with the provision and, after dealing with that, I had proposed to say why even on that view the appellant should still succeed. 

Your Honour’s observation was that the sentence says, “solely by reason of having a different nationality”, and that is strictly true.  The appellant’s point is that throughout the commentary there are also references to different treatment on the grounds of nationality without the use of the word “sole” and the remark is made in the commentary in the context of dealing with the discussion about the importance of residency.

GORDON J:   It is a big difficult, is it not, because the phrase which is there is “in the same circumstances” and the thing which is identified in paragraph 1 and in paragraph 4 to distinguish and take, in effect, the only thing that cannot be in the same circumstances is the nationality.  So you cannot just ignore the words of the articles themselves, can you, the commentary themselves, “in the same circumstances”?

MR HYDE PAGE:   Your Honour, I agree, one cannot ignore the words of the commentary and what they mean for the phrase “in the same circumstances”.  The commentary says that “in the same circumstances” is intended - what has been used in the article in order to flush out, if I can put it like that, tax treatment on undesirable bases.  The appellant’s submission is that undoubtedly taxation on the grounds of nationality is one of these undesirable bases but that that should not be allowed to operate as some sort of a restrictive code on the phrase “in the same circumstances”.

GLEESON J:   But you say, if the Commissioner relies on the visa status of Ms Addy, then she would never be in the same circumstances as a tax resident of Australia because a tax resident of Australia would never have a visa status.

MR HYDE PAGE:   That is correct, and that is why the appellant says that visa status is one of a number of characteristics that cannot be required by a “same circumstances” comparison.

GLEESON J:   So, is this correct - you would say visa status is a discrimen on the ground of nationality?

MR HYDE PAGE:   Yes, your Honour, and that is essentially the basis on which the dissenting judges in the lower courts found for the appellant. 

GORDON J:   In a sense – and I know we are going back to where you started – if you look at it through the tax prism and one works through the Assessment Act and the calculation of taxable income, one starts off with, as I understand your argument, the same treatment of both residents who are Australian for tax purposes, both being Australian nationals and UK nationals, all the way through the Assessment Act – that is, for the purposes of section 4‑15(1), as well as 4‑10(3) in the sense that you have a calculation of taxable income being assessable income minus deductions.  It then tells you to go to the Rates Act.

It is at that point you had this discrimination on your case because Parts I and II recognise that it is appropriate to have discrimination between residents and non‑residents, but what they have then done is carved out in Part III a subset of residents for tax purposes and the only basis upon which they are carved out is their nationality.

MR HYDE PAGE:   That is the appellant’s argument, your Honour, yes.

GORDON J:   Thank you.

GLEESON J:   I just have one more question.  Would it be a correct statement of your argument, just looking at the first sentence of paragraph 4, that Ms Addy is being treated differently solely by reason of having a different nationality because the tax burden on her is determined by reference to the fact that she has a visa?

MR HYDE PAGE:   Yes.  So the appellant says that if it is necessary for tax to be imposed on the sole basis of nationality, this is such a case.

GLEESON J:   Because she is being taxed on the basis of her visa which is something that a tax resident - Australian citizen would not have as a basis for taxation?

MR HYDE PAGE:   That is correct.  A visa is something that is inevitable where one has foreign nationals who are tax resident of Australia.  So the appellant says that it is taxation on the basis of nationality and that it is particularly clear that a visa cannot be a disqualifying characteristic in this case, not only because of the relationship of a visa to foreignness and nationality, but also because the article says - gives prominence to this particular scenario which is shared tax residency. 

Tax residency of Australia, unless somebody is here illegally, always means a visa and so to construe the provision so that on the one hand it seeks to prevent discrimination against Australian tax residence, but not if they are here by virtue of a visa, is self‑defeating.  It is to take this somewhat open‑textured part of the provision in the same circumstances and use it to defeat an express part of the provision which is the part of the provision that identifies shared tax residency as a scenario where there is equality of treatment. 

So there are two essential reasons there why we say that a visa should not be disqualifying:  one, its relationship to residency and the prominence given to residency in the article; and two, it may not be taxation based on nationality eo nominee but the two are so closely related that not many people would doubt that a tax on people who hold Australian visas is a tax that is falling on foreigners.  I believe it is not in dispute in this case that tax discrimination does not need to be eo nominee for relief to lie under Article 25, that there was discussion in the lower courts about disguised discrimination.

Other categories of disguised discrimination – while we are dealing with the topic – I would suggest all sorts of other things that - characteristics that only arise by virtue of the fact of nationality.  One could look at the appellant in this case, Ms Addy, and say, she is not entitled to vote in an Australian election – an Australian citizen would be so entitled – she is entitled to serve in the British Armed Forces; she is not entitled to serve in the Australian Armed Forces – one could go through a whole number of things that really are circumstances that cannot be shared but, as a matter of common sense and ordinary understanding of the world, always travel together with these concepts of different nationality.

Now, one would not say that Ms Addy should be precluded from relief under this article because she might one day join the British Armed Forces, and this is a characteristic that can never be shared by an Australian.  Equally, the appellant would say that the fact that Ms Addy can obtain a visa – and has to have a visa – while an Australian cannot, is not something that should prevent relief under this article because, when it comes down to it, that is a technicality arising from section 29 of the Migration Act and that is a very minor point on which to either confer or withhold relief under a broad based non‑discrimination clause from hundreds of thousands of people. 

When I say hundreds of thousands of people, what I mean by that is all foreigners who are tax resident in Australia have – unless they are illegal – visas.  That will always be a circumstance that is not shared by Australians who are physically present in this country and foreigners who are physically present in this country.

So, as I indicated earlier, in the context of interpretive principles that emphasise a holistic approach and not getting caught up on technicality, the appellant says that she should succeed, and that possession of a visa is not a circumstance that needs to be the same.

I might just very quickly return to the OECD commentary, although, certainly, the points that I wish to make in connection with that commentary ‑ ‑ ‑

KIEFEL CJ:   Where are we in relation to your outline?

MR HYDE PAGE:   Yes.  Your Honour we are at paragraphs 5, 6 and 7. 

KIEFEL CJ:   Thank you.

MR HYDE PAGE:   Now, I believe where we left the commentary, I had been acknowledging that the commentary refers to the sole basis of nationality but saying that that needs to be read in a broader context.  If I could just notice two other aspects of the broader discussion in the OECD Commentary, in particular paragraph 9.  In paragraph 9 it refers to the reason why Article 25 has been framed in the way that it has.  There is a rather lengthy sentence where it essentially paraphrases the article, and then says:

this paragraph has the same mandatory force as if it enjoined the Contracting States to accord the same treatment to their respective nationals.

KIEFEL CJ:   I thought your outline at paragraphs 5, 6 and 7 was concerned with the so‑called OECD rule that the majority in the Full Court seemed to raise and you say is really the rationale for the conclusion their Honours reached.

MR HYDE PAGE:   Yes, your Honour.  What is described in the written submissions as the OECD rule is the notion that Article 25 only applies to taxes imposed on the sole basis of nationality.  The materials that have been prayed in aid of that submission by the respondent are the OECD commentary and in particular this phrase that says:

the underlying question is whether two persons . . . are being treated differently solely by reason of having a different nationality.

Now, the appellant has not sought to pretend that that sentence does not exist.  The point that the appellant is seeking to make is that it does co‑exist in the commentary alongside this statement in paragraph 9 about the objective of according equal treatment.  So, there is a reference to equal treatment in the abstract. 

EDELMAN J:   Well, they are not necessarily in conflict if one is concerned with purpose and the other one is concerned with effect. 

MR HYDE PAGE:   Yes.

EDELMAN J:   References to “by reason of”, “on the basis of”, “for the purpose of” are concerned with the purpose for acting, whereas statements like must have the:

same mandatory force as if it enjoined the Contracting States to accord the same treatment to their respective nationals -

is looking at the effect of the provision.

MR HYDE PAGE:   Yes, your Honour.

GORDON J:   Made clear by what follows.  It tells the relevant contracting States how they might grant positive benefits so that they are not in breach of the article.

MR HYDE PAGE:   Yes.

EDELMAN J: But your submission is not one that is based on purpose in any way, is it? You do not say, for example, that the schedule in Part III of Schedule 7, or the rates in Part III of Schedule 7 were for the purpose of, designed for, for the reason of ensuring that the working holiday makers are treated differently from Australian residents?

MR HYDE PAGE:   I do not say that at all, your Honour, and I would like to be quite clear on that.  There is no suggestion that the main purpose of that particular legislation ‑ ‑ ‑

EDELMAN J:   That purpose might be clarity in tax rates for working holiday makers, simplifying the tax rates ‑ ‑ ‑

MR HYDE PAGE:   Yes.

EDELMAN J:   Many other related purposes.

MR HYDE PAGE:   Yes, undoubtedly, and there is ‑ ‑ ‑

GORDON J:   One of the main purposes was to make backpackers pay their fair share of tax.

MR HYDE PAGE:   Yes, and one of the main purposes of introducing a higher rate of tax is to collect more tax, indeed.

GORDON J:   So when you stop and think about that, talking about this question that you are answering from Justice Edelman, the question is, is the impact or the role that Article 25 or Article 24 in this double tax convention has in relation to that provision.  In other words, it exists independent of it and the question which then arises is what is the impact of the application of that article in relations between residents of Australia for tax purposes who happen to be UK nationals.

MR HYDE PAGE:   Yes.

GORDON J:   Am I right that there are only eight countries that are in the same category as the UK in relation to this matter, that is, those that have the ability to apply for this work visa and who have the same non‑discrimination clause?

MR HYDE PAGE:   Your Honour, I believe the figure is eight countries, yes, and there is a ninth country, the United States, where ‑ ‑ ‑

GORDON J:   But it has a different form of provision though, does it not?

MR HYDE PAGE:   It has a non‑binding ‑ ‑ ‑

GORDON J:   Thank you.

MR HYDE PAGE:   ‑ ‑ ‑ non‑discrimination clause so, yes, only – the citizens of only eight countries are both entitled to obtain working holiday visas and also have the benefit of one of these non‑discrimination clauses.  But I do not want to allow the point that was raised by Justice Edelman to be lost, which is one about the purpose of table 3. 

Now, your Honour made the observation that there are a range of different subjective factors that underlie the introduction of that legislation.  Its purpose was not to be nasty to foreigners, if I can put it like that.  That is accepted.  The impact of Article 25 on the appellant’s submission is one that should be controlled solely by the text of Article 25 and the notion of same circumstances, and I have outlined why same circumstances should not include the visa that permitted Ms Addy to be here.

EDELMAN J:   That is your short point, is it not?  Your short point is that the effect of the different rates treatment is to fall within the terms of Article 25.

MR HYDE PAGE:   It is, yes.

EDELMAN J:   Is it any more than that?

MR HYDE PAGE:   There is a tiny bit more than that, if I could put it like that, your Honour, and that is the question that has been under discussion about whether or not the purpose of the legislation is to prevent discrimination on the grounds of nationality.  The appellant does not say that that is part of the text of the provision and that is a matter of great relevance.

The reason for arguing that preventing discrimination on the basis of nationality is just one of a number of things that emerged from the extrinsic materials is to deal with this argument that there is some extra‑textual requirement that co‑exists with the text of Article 25.  In the lower courts, the case was substantially resolved on the basis that Article 25 should not apply because this particular tax does not discriminate on the sole bounds of nationality.

The appellant’s point is that, while it is always relevant to consider whether or not there is discrimination on the sole grounds of nationality, that does not have the importance and significance that would warrant the engrafting of an additional rule onto the plain text.

Now, if the OECD model said repetitively, “This is a limited exclusion, we are only trying to prevent discrimination on the basis of nationality”, then I would suggest the respondent would be in a better position.  One could say there is this very narrow purpose and we should strain the language of Article 25 in order to realise that purpose.

GAGELER J:   One way of putting your case is that the discrimination is expressly on the basis of a characteristic that is intrinsic to foreign nationality in Australia.

MR HYDE PAGE:   That is correct, your Honour, yes, and that is why when one moves to the final issue identified in the outline of argument that the appellant says the appellant should still win.

KIEFEL CJ:   Even if it is sole basis of nationality.

MR HYDE PAGE:   Yes.

KIEFEL CJ:   It follows that, by reference to the visa, it was in fact a sole basis.

MR HYDE PAGE:   That is correct, your Honour, yes.

KIEFEL CJ:   Do you need to develop that any further?

MR HYDE PAGE:   Probably not at significant length, your Honour.  It is a fairly short point.

KIEFEL CJ:   Yes.

MR HYDE PAGE:   The observation that the appellant will simply make relates to the nature of the test that was proposed and applied in the Full Court.  The Full Court said it is clear that Article 25 only applies to a harsher treatment that is imposed on the basis of nationality.  One may immediately observe that the question of whether or not something is imposed on the basis of nationality is itself a proposition or a test that needs to be fleshed out.

GORDON J:   Is not your simple point on that that you have up to $37,000 cap, 15 per cent tax rate versus zero?

MR HYDE PAGE:   Well, yes, and that that treatment can only apply to foreigners, yes.

GORDON J:   Only apply to those people to whom Part III of the Rates Act applies?

MR HYDE PAGE:   Yes.  So, that is the simple answer.  The slightly more involved one is that what the majority in the Full Court implicitly were saying was that tax is not based solely on nationality unless it is based on all members of that particular national group.  The language that emerges from Justice Derrington’s judgment, for example, is Ms Addy did not have this visa because she was a British national, she could have had a different visa.  Now, that is a very – I would submit – unusual way of looking at causation ‑ ‑ ‑

EDELMAN J:   Well, it is the natural reading of “because of”, “for the reason of”, “for the purpose of”.

MR HYDE PAGE:   Yes.

EDELMAN J:   It is purposive.

MR HYDE PAGE:   Well, for the reason of nationality, yes.  But as soon as one accepts that it is not nationality eo nominee and it extends to other matters, one then has to – in order to address this test – which I emphasise the appellant does not even want – one has to then look at just how closely related to nationality the particular characteristics are.

EDELMAN J:   That just collapses back into your primary submission, because one is ultimately then saying, well is the effect of this – does it have the effect of treating British nationals differently?

MR HYDE PAGE:   Well, with respect, your Honour, it does not entirely collapse back into it, because yes there is that effect, but one has to characterise that effect as whether or not it is based on nationality.  The appellant’s point is simply that the fact that not all nationals are liable to pay the backpacker tax does not mean that it is not based on nationality.  Not all foreign nationals will come to Australia, but to tax them by reference to their visas is to do so by reason of nationality.  So, the appellant says that even adopting the non‑textual rule, the appellant should succeed.

Your Honours, those are the issues in this case that I propose to deal with.  Unless your Honours have any questions, those are the submissions for the appellant.

KIEFEL CJ:   Yes, thank you, Mr Hyde Page.  Mr Lloyd.

MR LLOYD:   I propose to address four issues.  The first concerns ‑ ‑ ‑

GORDON J:   Could you please speak up, Mr Lloyd, I cannot hear you, I am sorry.

MR LLOYD:   Sorry.  Four issues: the first concerns the terms of the tax agreement and the nature of the comparison we say is required by it; the second is the application of the comparison in this case; the third is what happens if a comparison is not possible; and the fourth is, does the Income Tax Rates Act imposes tax by reference to a proxy for nationality.  It may be that it is only really the fourth that is critical in the way that argument is developed, or hearing what the Court says, but I would still like to cover the earlier elements.

The UK double tax agreement is in the bundle at tab 4.  I draw attention first to the definition of “national”, which is in Article 3 on page 30, letter (l).  In relation to Australia, it is in (ii).  It distinguishes between natural persons and corporations.  In relation to the former, an Australian citizen and a person:

granted permanent residency status -

are both Australian nationals.  We submit that one means by which a person may have been granted permanent residency is when the person is granted a permanent visa.  The definition may also extend to any non‑citizen who has a right under Australian law to reside permanently in Australia even if that right does not arise under a visa.  Article 25 is in the same bundle.  It is at page 53.  The article is entitled “Non‑discrimination”, although that word is not used otherwise in the article.  Paragraph 1 is the focal point of this case. 

Just to address one thing my friend said in his submissions that this document should be construed to allow as many countries as possible to be encouraged to become a party to it, that is obviously not appropriate in a bilateral agreement, even less so in one which has clause 25.6(e) in it, which allows the parties to the agreement in effect to address specific issues between themselves.  So we say that is not really a guiding principle for this kind of treaty.

EDELMAN J:   What are the rules in relation to headings as to their relevance for interpretation purposes under the Vienna Convention on the Law of Treaties?

MR LLOYD:   We would submit it is part of the context and text of the treaty.  Paragraph 1 relevantly comprises a promise not to subject nationals of “the other contracting State to any taxation” that is more burdensome than the taxation to which its own nationals and, critically, “in the same circumstances . . . are or may be subjected”.  We say it is apparent that the provision envisages undertaking a comparison, in the present context that the tax burden imposed on Ms Addy as a UK national on the one hand, and the tax burden that would be imposed on an Australian national so‑called in the same circumstances.

GAGELER J:   So you accept that the comparison is to be  made national by national or citizen by citizen?  It is not a global comparison between one set of nationals and another set of national?

MR LLOYD:   Yes.  Perhaps I will come back to that when it comes to the issue of disguised discrimination or proxy, but in broad brush one looks at the circumstances of the taxpayer in issue and you identify the particular taxpayer, you identify how the tax is imposed – relevantly here Ms Addy – how the Australian tax law imposes tax upon her and then ask how it would impose tax upon somebody in the same circumstances, and I will come to this, but we say that means the same tax relevant to circumstances.

GAGELER J:   Is another way of putting the comparison you look at the tax treatment of Ms Addy as a British citizen and ask what would her treatment be if she were an Australian citizen?

GLEESON J:   In the same circumstances.

GAGELER J:   Or just in the circumstances – in the circumstances in which she finds herself.  If you just leave everything as it is, but change the citizenship element, is that not the comparison?

MR LLOYD:  Well, we say one looks at all of the same circumstances that have relevance to tax and excluding nationality.  Nationality is not just citizenship, of course, but subject to that ‑ ‑ ‑

GAGELER J:   Well, it is so defined I think in Article 4.

MR LLOYD:   No, I took the Court to that.  It is not defined that way.  It is a more elaborate definition.  It includes permanent residence, for example.  But the comparison is to – in this case, one looks to see if Ms Addy is taxed under Part III ‑ ‑ ‑ 

GORDON J:   She is not taxed under Part III.  The rates are under Part III.  She is taxed under the usual assessment regime. 

MR LLOYD:   I accept that. 

GORDON J:   So, to pick up Justice Gageler’s question – it is actually quite important – the tax treatment is exactly the same until you get to the Rates Act.  So, if you compare the tax treatment of Ms Addy as a UK national, compared to an Australian national, their tax treatment is identical, both in terms of the Assessment Act until you get to the Rates Act. 

MR LLOYD:   I accept that.  I did not mean to say anything different to that, but once one gets to the Rates Act it probably is not just Part III.  But I will come to the Rates Act.  But she earns income which is characterised as working holiday taxable income, and so the question is would an Australian national who earned working holiday taxable income pay the same rates under Part III and the answer is yes.

GORDON J:   I think that is where you and I might part company, Mr Lloyd.  I think at the moment is – and I know you are going to come to it and so I do not seek to delay you – but what happens in the Rates Act is that there is a characterisation given to her which is different from that which is given to the Australian national in the same circumstances, and that characterisation only arises at that point. 

MR LLOYD:   Your Honour will apprehend that we say that is not so.  We say that one looks for – an Australian national in the same circumstances would be an Australian national who held that visa ‑ ‑ ‑

GORDON J:   But they would not be able to hold that visa.

MR LLOYD:   I will come to that as well.  But assuming that they cannot hold that visa, then the comparison is not possible.  Then Article 25(1) is not engaged unless holding a visa is a proxy for nationality, and that is the fourth point we get to, which is whether or not holding a visa is a proxy for nationality.  We say it is not, and that, I think, is where the dust ultimately settles in this case.

GAGELER J:   What do you mean by proxy?  Is it some sort of nefarious, tricky, roundabout means of bringing about a prohibited result?  Is that what you have in mind?

MR LLOYD:   No.  We say that the way that the Income Tax Rates Act works is it imposes a particular kind of tax on persons who hold particular kinds of visas, two specific kinds of visas essentially.  So, in that sense, the point of discrimination between people is whether or not they hold those visas. Holding a visa ‑ ‑ ‑ 

EDELMAN J:   In other words, it is not purposive – the purpose is not to single them out for reasons of their nationality, even if that might be the effect.

MR LLOYD:   We say it is not even the effect.  There are plenty of British people who do not have to pay it.  It is just people who have this particular class of visa.  That class of visa is given – people who have that class of visa are given a different tax treatment for entirely cogent and non‑discriminatory reasons and we say the question is, is holding this specific kind of visa nationality – no, it is not.  Is it so closely related to nationality that it should be treated as if it is nationality – that is our fourth point – we say no, it is not.  But I will come to that.

So the comparison we say is putting Ms Addy as a UK national and a tax burden imposed upon an Australian national in the same circumstances.  That involves hypothesising a national in Australia who would otherwise be in the circumstances and in that respect we say – and I will come to this in more detail – that the circumstances are relatively tax‑related circumstances:  how tall someone is, whether someone is able to apply to be in the British Armed Forces. 

They have no significance for a tax under the current law, so they are not relevant circumstances, we would say, to be compared.  “The same circumstances” means the same circumstances that could conceivably have tax consequences.

GORDON J:   Did you say could conceivably have tax consequences?  Is that your submission?  I missed what you just said, Mr Lloyd.

MR LLOYD:   I did say could conceivably have tax consequences.

GORDON J:   Thank you.

MR LLOYD:   Perhaps I should explain why I put it in those terms.  If one looks at Ms Addy’s position, she is taxed as the holder of a particular visa and under the Income Tax Rates Act, being a resident or not resident is irrelevant to her tax obligations, but if there was discrimination on the basis of nationality or if the visa is to be equated with nationality, then one can disregard the holding of the visa and then at that point residence would be something that would have tax consequences for her.

The comparator is the same in all respects, we say, pertaining to tax, other than the topic of being a national.  I will use the word “nationality” but when I do so it should be understood that I am only using it in the elaborate treaty sense.  It is easy to equate it with citizenship but it is not the same and there are some consequences of that as well.

If the comparison shows that the tax burden is higher for the foreign national by reason of the difference in nationality, we say then or accept that the provision is engaged to prevent the excess taxation.  In this sense, the operation of the provision requiring as it does a comparison where everything relevant at least is held the same except for nationality and that is fairly described as a clause that prevents discrimination by reference to nationality, and, indeed, it is fairly described as all of the justices in the courts below said as being solely by reference to nationality because that is the sole tax‑relevant criteria that changes in the comparison.

Now, I note that the clause operates not only in relation to amounts of taxation, but also in relation to administrative burdens, but I have not addressed that because it is not relevant to this case.  I also noticed the expression in particular with respect to residents.  We say that expression operates to put beyond argument that status as a resident or non‑resident is to be treated as all other tax‑related circumstances other than nationality, which is to say residence must be one of the things that is held to be the same. 

Now, in that sense and accepting what will be put against me that an Australian cannot have this visa, but if an Australian could have the visa, the working holiday visa, that Australian’s residence would not actually be relevant because Part III would apply to them as well, we say.  Residency status is obviously something which is commonly given tax consequences.  It does not always have to be, there is no rule that says there has to be different rates according to residence, and so we do not get anything out of those words, nor do they do us any harm.  They are just one of the many things that would have tax consequences other than nationality. 

Perhaps the one thing we do get out of it is that residence is something that might be seen as disproportionately – that foreign workers may, in many respects, be more likely to be non‑residents than domestic workers, so in that sense it might be seen to be disproportionately likely to imply nationality and so it is made clear to avoid that. 

In a case I will come to, the Union Dominion case, the version of the non‑discrimination clause used in the UK/New Zealand treaty did not have those words and that did lead to an argument that residence was really a proxy for nationality.  So we say it is just there to avoid that issue. 

Paragraph 14 of our submissions set out how the treaty intersects with the Australian law.  It seems to be uncontroversial so I will not say anything more about that.  Before leaving Article 25, I should say that my friend’s submissions, especially his written submissions, refer to us as trying to argue for some rule of limitation drawn from the explanatory memorandum or the OECD commentary. 

We just say that the description of the article as being directed solely at the discrimen of nationality is just an accurate description of what it actually does.  We do not need to rely on any of that to make that good.  It just how we say it works. 

GORDON J:   Could I ask one question about the commentary because I do not actually know what the answer is.  You both used the 2003 commentary.  There are of course subsequent commentaries.  In the 2003 commentary, Australia reserved its position on this article in the reservations to it, that is to Article 24 and the actual original commentary.  It changed its position by 2008.  Are we entitled to look at the subsequent commentary?

MR LLOYD:   I might get some instructions on that, your Honour.

GORDON J:   Thank you.  You do not need to address it now, Mr Lloyd, but I just wanted to make sure we understood which one we were using, and why.

MR LLOYD:   We refer to it in a footnote in one of our submissions.  We have referred to the 2003 one simply because it was the one that was in existence at the time that Australia entered the treaty in issue, and we thought if we referred to the more recent one – which I think in an earlier draft we did – we thought we would get into trouble in doing that ‑ ‑ ‑

GORDON J:   There is some jurisprudence, internationally at least, that you are entitled to look at subsequent commentaries which do no more than clarify, as distinct from changed provisions of the Model Convention.

MR LLOYD:   I think that is so, and I think that it is my client’s – yes, I apologise for not being better – there was some issue where I think my client wanted to say you could rely upon the later OECD, and there was some suggestion that there was a controversy about that, and then I said, well, we only need the one that was applicable at the time.  I think that did not change is my recollection – the relevant bits did not change.

GORDON J:   I think the subsequent one has additional originating or general remarks at the beginning.  My only question is because Australia reserved its position on this article – that is the only reason why I asked – in 2003.

MR LLOYD:   While I continue, I will see if I get any further instructions as to that.

GORDON J:   Thank you.

KIEFEL CJ:   Perhaps you could take those over the morning break, which we could take now.

MR LLOYD:   Thank you, your Honour.

AT 10.57 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.11 AM:

KIEFEL CJ:   Yes, Mr Lloyd.

MR LLOYD:   In further answer to your Honour Justice Gordon’s questions, I am instructed that as at 2003 Australia had expressed a reservation in relation to including a non‑discrimination clause in an agreement because at that point in time Australia had not included one based upon the Model Convention.

GORDON J:   I understand that from the history.

MR LLOYD:   I think we might have included a different kind of clause in the US/Australia agreement, so there was a reservation about that.  Subsequently, in 2003, Australia did decide to include them in several treaties.

GORDON J:   The UK was the first one.

MR LLOYD:   I accept that, your Honour.  All I am trying to say is that the reservation was not about the commentary being inaccurate or anything along that line.  The reservation was about the use of non‑discrimination clauses at all.  Australia has now embraced them to a limited extent.

GORDON J:   Thank you.

MR LLOYD:   For what it is worth, in the 2017 commentary in paragraph 17 it says much the same as the bit that we extracted from the 2003 commentary.  So it has the same reference to “solely by reason of nationality”.

GORDON J:   Do you have instructions about what your position is about looking at the subsequent commentaries because they do include general remarks at the beginning of the subsequent commentaries, which are not included in the 2003 version?

MR LLOYD:   Yes.  My instructions are that my client thinks it can be done but my client is aware of obiter references in other cases which have questioned whether or not it can be done.  My client would want to argue that it can be done.

GORDON J:   Why?

MR LLOYD:   Well, to the extent that it clarifies any obscurity in the earlier version.

EDELMAN J:   So it could be done not for the purposes of looking at it just as a secondary source but actually for the purposes of Article 31 or 32 of the Vienna Convention to clarify meaning?

MR LLOYD:   The 2003 version could be looked at for the purposes of Article 31 as a part of context and also for the purposes of confirming Article 32 and the later versions at least to the extent that there have not been changes in terms of the draft article can also be used under Article 32.

GORDON J:   That is consistent with what the OECD had published in 1997 about the use of recommendations in relation to the commentaries on this Model Convention, that is, it should be used as adopted and modified from time to time to the extent that it clarified rather than addressed a new change.

MR LLOYD:   Thank you, your Honour.  So what I was saying was that it is not part of our case that there is some broad natural language that has to be read down by reference to what my friend calls a rule of limitations.  We just say that it operates by reference to keeping everything relevantly the same except for nationality.  So, in that sense, it is looking at discrimination solely by reference to nationality.  There is nothing really further to it than that. 

That is obviously in a context where taxes often discriminate on all kinds of bases.  The one limited promise that is engaged in this treaty is in relation to nationality.  We say that the explanatory memorandum confirms the construction that was advanced.  We set that out in paragraph 25 of our submissions; we will not go to that. 

We refer to the OECD in paragraph 26 of our submissions, and I have just given the citation to the 2017 aspect.  Our submissions on that and OECD commentary can be used in paragraph 36, but I do not propose to develop that, because all of it is just confirmatory to what we say is the natural meaning in any event.  That is to say, we say it is the effect of the article, it is not a gloss arising from extrinsic material, and we also rely upon the fact that all of the judges in the courts below were of the same view.  They all embraced solely by reference to discrimination, and we set out the relevant references in paragraph 28 of our submissions.

The appellant, we say, also misunderstands the Commissioner’s construction.  In particular, the appellant repeatedly submits, for example, in paragraph 5 of her reply, that the object of the clause can be defeated, on the Commissioner’s construction, by simply making the discrimination based on two criteria, that is, nationality and something else.  The appellant says that we say this would not engage the provision.  That is not what we say, and it never has been what we said. 

The appellant also makes a point that was made today that, on our view, the article can only have application to illegal immigrants.  That simply is not a consequence of our view.  The Commissioner says that the clause applies to any case in which nationality is the discrimen for different tax treatment.  So the most straightforward case would be where a law simply imposed a high rate of tax on UK nationals.  That would do it.  It would engage Article 25(1).  It is not limited to illegal immigrants in that case.  So that way of analysing our position is simply wrong.

A different example is that a law might impose a higher rate of tax, say, on foreign nationals who are employers, as compared with all Australian nationals.  So that is the two criteria:  foreign nationals and employers.  We say that if you undertake the comparison that Article 25 requires, you look at the position of the particular foreign national employer taxpayer.

One of the tax‑related circumstances which is relevant is that the person is an employer.  You then say, “Can we compare this with the tax that would be imposed on an Australian national who is an employer?”, and you say, “Look, it is different,” and then it applies.  So it is no part of the Commissioner’s case that solely by reference to taxation means that you can avoid the term by just putting in other things.  What we say is that it has to be the nationality that has the effect of the higher burden, not other features.

GAGELER J:   What about a feature that is a characteristic of foreign nationality?

MR LLOYD:   I will come to that.  It depends what one means.  We would accept ‑ and we have used the expression “proxy” which I think your Honour was not thrilled by before ‑ but if, for example, there was an Australian law that said someone has to pay higher tax if they hold a passport from another country, they do not hold a permanent visa in Australia and they are not an Australian citizen either.

Now, in technical terms, that is not saying nationality is a criterion but in practical terms it would be seen as a disguised – sometimes a case is referred to as “disguised discrimination”.  It would be, in substance, an attack upon nationality and we would say it would readily be seen as such.

When I get to my last part, we will say that the two visas in this case – it is not even all visas.  If the law had said, anybody who holds any visa has to pay higher tax ‑ actually, if it said that then that is perhaps an interesting example.  If the law said, “anybody who holds any visa has to pay higher tax”, it clearly would not engage the provision because ‑ ‑ ‑ 

GAGELER J:   “Would not”, did you say?

MR LLOYD:   It would not because a whole lot of those people who hold visas might have permanent visas and they would be Australian nationals.  So then it would not discriminate on the basis of nationals per se.  Anyway, our point is that one has to look at each case.  In this case we have a law which imposes a taxation by reference to the tax discrimen of holding effectively one of two kinds of visas, or at least one of those two kinds or a related bridging visa.

So, I turn now to say, having said what we say about the comparison that the treaty requires, we are now trying to apply it in this case.  We say one seeks to compare a person in the circumstances of Ms Addy with a person in the same circumstances but who is a national of Australia.  As I have said, in the same circumstances means all identical – means identical in all matters other than nationality from a taxation point of view. 

If I could just take the Court to the decision of the New Zealand Court of Appeal in Commissioner of Inland Revenue v United Dominions Trust [1973] 2 NZLR 555 – it is volume 4, tab18 of the bundle. Article XIX of the UK New Zealand treaty can be found on page 559 of the report, 553 of the bundle. One sees it is largely the same but does not have the bit about in particular residence. Now, if one turns then to page 566 in the reasons of Justice Richmond, starting on about line 25:

In this context there can be no doubt that the sole purpose of Article XIX (1) is to prevent is to prevent discrimination against “nationals” as such.  Clearly it is for this very reason that the phrase “in the same circumstances” has been used in Article XIX(1).  If those words are to achieve their intended effect they should be construed in the sense of “in substantially identical circumstances” – that is, identical as regards all matters (except nationality) which are relevant form a taxation point of view to the notional comparison -

The President said something somewhat similar at page 561, I will not read it out, but lines 10 to 18.  Justice White addresses this topic and I will go to this because it relates to some later points, starting at the bottom of page 572 at line 49:

I do not agree that the concept of residence merges in the concept of nationality in that way.  On the contrary, in my view, residence becomes a fundamental factor when the words “in the same circumstances”, other than nationality, are considered in applying Article XIX(1).  That paragraph prohibits discrimination by one country on the grounds of nationality in situations where nationals of the other country “in the same circumstances”, as they affect liability for tax, would be subjected to a less burdensome taxation. 

That was the point that I was just making but, to save coming back to this paragraph, his Honour continued:

Therefore, the taxpayer claiming relief must be able to find by way of comparison a notional national of the other territory “in the same circumstances”.  Once it is accepted that “same circumstances” includes “residence” the objector, in my opinion, cannot point to a notional New Zealand company which is “in the same circumstances”.

Now, I will come to what the consequences of that are, but obviously it deals with a situation - where there may be situations where they are no comparisons that can be made.

So, our point for the moment is just that the comparison requires one to focus upon the taxation‑relevant circumstance.  The first relevant circumstance in this case is that Ms Addy earned an amount of income during the relevant tax year – nothing turns on the amount.  Then section 5(1) of the Income Tax Act of 1986 – and this did not find its way into the bundle – but it says income tax is imposed in accordance with this Act and that the relevant rate is declared by the Income Tax Rates Act 1986. Excerpts from that Act – that is to say the Income Tax Rates Act are in tab 3 of the bundle; section 12 however is not included. It says, relevantly that the rates of tax are “as set out in Schedule 7”.

Before going to Schedule 7, I will just note four definitions. There is a definition of “prescribed non-resident” and a definition of “resident taxpayer” – I do not need to deal with the detail of that, but it may turn, not surprisingly, on someone being a resident or not a resident. Then there is a definition of “working holiday maker” at the end of the definitions section and a “working holiday taxable income”. Both of them have their meanings from section 3A.

Section 3A(1) provides that a person is a “working holiday maker” if the person holds a working holiday visa, a work and holiday visa, or a bridging visa associated with either of them.  Then 3A(2) refers to “assessable income” and is given the character of being “working holiday taxable income” when the criteria are met.  In essence, they are met when a person earns income from that source in Australia while on one of the aforementioned visas.

The rates of tax applicable to such a person are in Part III, which is on page 24.  It may be seen that the tax rates on this form of income are unaffected by nationality – in the sense that it certainly does not in terms refers to nationality, of the person.  It is also – and maybe I make this point here.  Whether or not Australian citizens can get visas, or Australian nationals can get this kind of visa, is not a matter of the tax legislation, it is a matter of the Migration Act, it could change.  It is also ‑ ‑ ‑ 

GAGELER J:   Is that relevant to your argument, the point that you have just made?

MR LLOYD:   Well, it has this relevance, I will come back to it when I am about to deal with the question of whether or not a comparison is available here.  It is relevant at least to this extent, that if, later on, one is looking to see whether or not holding a visa is a proxy, as we put it, for nationality, the fact that it is liable to change is indicative of it, we would say, or supportive of it not being a proxy for nationality.

GORDON J:   What is the liability to change?  You mean whether the visa is – whether you hold a visa or not, is that the liability to change?

MR LLOYD:   Well, it could change.  Australians could be granted visas.

GAGELER J:   Well, what you are saying is that the legislature that imposes a tax can also change the migration law.

MR LLOYD:   That is so.  I accept it perhaps does not go very far, but it is just to be seen that this was pre‑existing migration law position, when the tax was enacted.  It could change.  It is not a tax law, there is nothing in the sections which impose the tax which limits visas to non‑citizens, or non‑nationals.  So, in a sense, a short answer to the appeal is that an Australian national who earned the same amount of working holiday taxable income as Ms Addy would be taxed at exactly the same rate, that is the point that I am trying to make.  There is nothing in the tax legislation that says Australians who have working holiday visas are treated differently.  Now, of course ‑ ‑ ‑ 

GORDON J:   But you accept there are no Australians who hold a working visa?

MR LLOYD:   I will come to that.

GORDON J:   Sorry, I put it too broadly, I suspect, in the sense that there are no Australian nationals who hold a working holiday visa.

MR LLOYD:   That is so in the way the matter has proceeded and we do not seek to walk away from that, but I do feel I need to put something to the Court to put that in a context because I do not want to mislead the Court about that exact question.  The point that was made in our submissions and made in the court below is that under section 29 of the Migration Act, which is in the bundle under ‑ ‑ ‑

EDELMAN J:   Tab 8.

MR LLOYD:   Thank you, your Honour.  Section 29 of the Migration Act empowers the minister to grant non‑citizens visas.  So that was one thing.  We accept that overwhelmingly the Minister’s only power to grant visas is to non‑citizens.  There is one immaterial exception to that which we are not saying that we rely upon but technically under section 195A the Minister has a power to grant a visa to somebody in detention.  But we do not rely upon that; we just note it so that we are not misleading the Court about that issue.

A person in detention could be a citizen who is reasonably suspected of being a non‑citizen, but we do not rely upon that.  We just do not want to mislead the Court.  Putting that aside, basically citizens cannot be granted visas – that is fine.  The next section which is relevant because of the definition of “national” includes all permanent resident visas.  So if you were somebody who was a permanent resident of Australia, as soon as you applied for and were granted a working holiday visa, the effect of section 82 of the Migration Act provides that:

A substantive visa held by a non‑citizen ceases to be in effect if another substantive visa . . . for the non‑citizen comes into effect.

So if you had a spouse visa which was a permanent visa and you said, “I am a non‑resident spouse; I want to go to Australia and to work for 12 months and have a lower tax rate” you could choose to give up your spouse visa and get a working holiday visa.  But then at that point in time you would cease to be a national because you would then at that point in time not be a national under the treaty.

That is how the matter ran in the courts below.  We are not trying to walk away from that but it has occurred to me that there is another scenario which is where somebody on a working holiday visa gets Australian citizenship.  Nothing in section 82 says that that visa comes to an end when someone gets Australian citizenship.

I am instructed that the Commonwealth take the view that visas are not required by citizens and that people are at least administratively treated as if they do not have visas, but I just did not want to mislead the Court as to whether or not strictly there may be some people who are Australian nationals, in fact Australian citizens, who hold working holiday visas.  But again, we will proceed on the same basis as was done in the courts below that we are accepting that that number would be a de minimis number.

GAGELER J:   I think you said in answer to an earlier question from me that Article 25 is to be applied national by national.  We are not concerned with the outer limits of the cohort.

MR LLOYD:   Well, the comparison is looking for someone in the same circumstances here as Ms Addy.  You could not look at someone in the same circumstances as all British nationals because they would have potentially quite different tax‑relevant circumstances.  Is that what your Honour is – that is what I thought I was agreeing to.

GAGELER J:   Yes.

MR LLOYD:   I do not want to be understood to be saying that the comparison requires you to somehow lump all UK nationals together.

GAGELER J:   We do not have to be concerned with someone who is currently in immigration detention who might be granted under section 195A a working holiday visa.

MR LLOYD:   Certainly not, but if the question is – one way my friend put it was – I will just find his words.  He said something like “tax residency for foreigners” or “tax residency for non‑citizens always means a visa”.  Now, again in light of the recent decision of this Court in Thoms, that may not be correct.  It might be possible for you to be a tax resident without a visa – might be.  It might be possible for Mr Thoms to get a working holiday visa.  We are not saying Ms Addy is in that circumstance. 

But if the correct way of applying the comparison is to ask would an Australian who earnt this amount of income at this time in Australia on a working holiday visa pay the same amount, the answer is unambiguously yes.  Are there any?  Well, we do not know that there are probably are not in fact any.  Could there conceivably be some?  Depending upon the view the Court takes to whether section 82 – or there is some implication that the grant of citizenship and visas or someone in the position of Mr Thoms, then there might be a different answer.

GORDON J:   Is your answer if the working visa is excluded from the comparator, that they give rise to different tax outcomes?

MR LLOYD:   If the working holiday visa is de facto nationality ‑ ‑ ‑

GORDON J:   Yes.

MR LLOYD:   ‑ ‑ ‑ and it should then be changed, so one then imagines an Australian national who ‑ ‑ ‑

GORDON J:   Is doing exactly the same work in the same circumstances.

MR LLOYD:   ‑ ‑ ‑ has done exactly the same work, then we accept that it is a different – it is more burdensome.  So that is why we say the whole question really is whether or not the specification by the government of these two visas as a discrimen is properly equated to the identification of nationality.  Now, I will assume for the rest of my submissions, as was put in the courts below and how my client administers, or at least the Commonwealth administers the visa scheme, is that Australian citizens do not hold visas of any kind.

And so, in that scenario, we say that, like in the Union Dominion Case, there is no comparator, and then the question then is, well, is having a visa really a, sort of, de facto way of bringing in nationality?  So they are the remaining two questions that I have to address.  In relation to what happens if a comparison is not possible, I do not know that this is particularly controversial, obviously my friend says it is possible because you just disregard the visa, but we say the obligation on a taxpayer challenging the decision, seeking to engage or rely upon Article 25.1 is to show that, on a comparison that is able to be done, it is engaged.  If there can be no comparison, then, as in the Union Dominion Case, the taxpayer is unsuccessful.

Now, in that case, what happened, the respondent was a company incorporated – it is under tab 18 ‑ there was a company incorporated in the UK, with its head office in the UK, and it was, obviously, a UK national.  It suffered a higher rate because it was a New Zealand non‑resident, and it said that the treaty conceived of a comparison with a company in the same circumstances as it, save for nationality.  And it contemplated a New Zealand incorporated company, therefore, a New Zealand national under the treaty, that had its head office in London and earned the same income in the same way.

So, a hypothetical company of that kind, however, would still be a New Zealand resident, because under New Zealand law all companies incorporated in New Zealand are New Zealand residents, wherever their head office is.  As a result, it was impossible for a foreign non‑resident company ever to be compared with a New Zealand non‑resident company, because there were no New Zealand non‑resident companies.  And I have already referred to paragraph 573, I will not go back to there.  Justice Richmond addresses it as well, at 566, in the passage below the passage I read out before:

Mr Patterson’s argument in effect assumes that it will always be possible notionally to place a national of the taxing territory “in the same circumstances” as the national of the other territory who complains of discrimination.  The present case illustrates that this is not necessarily so.  In order to obtain a true comparison between the English company and a national of New Zealand it would be necessary notionally to envisage a company which is both a national of New Zealand and a resident of the United Kingdom.  This, of course, cannot be done and in my view Article XIX (1) accordingly has no application.

So, a consequence of, we say, a lack of comparison is that the article was not engaged.  We say that should be the result in this case, but we accept that that would not be the result if holding these specific kind of visas should properly be seen as under the rubric of nationality, in which case obviously the comparison could be undertaken by disregarding it. 

Now, in United Dominion, the tax discrimen was this idea of deemed residency.  The court accepted that residence was different to nationality even in relation to companies and was a circumstance that had to be the same to follow for the required comparison.  I will not take the Court to it, but President McCarthy addresses that at page 561 from line 19, and I have also referred to the other relevant passages.

In the present case, the critical tax discrimen is the holding of the visa of a very specific type.  The appellant’s case in substance is that because Australian nationals cannot have visas, it must be seen as a proxy for nationality and disregarded – or must be just seen as nationality and be disregarded. 

Now, I already said what I have said about whether that premise is correct, about Australians not being able to have visas.  Let us assume for the moment that that is so.  If it is not correct, of course, we would say the appellant must then lose. 

I will now proceed on the assumption that Australians cannot hold these specific types of visas.  Is that feature enough to make a holding of those visas a proxy for UK nationality – we say the Commissioner contends that it certainly is not enough.  The legislation that introduced the working holiday maker tax rates is discussed in our written submissions from paragraphs 9 to 11. 

Paragraph 11, in particular, addresses the purposes of the legislation.  We say that that is important and relevant that the scheme was introduced to reduce the levels of tax faced by most working holiday makers.  That is made clear – and that it was beneficial was also discussed in passages in Justice Steward’s reasons, where he sets out the explanatory memorandum, but we also note in our footnote 12, in introducing the legislation it was done with the recognition that the legislation would decrease revenues by $420 million over the forward estimates. 

So, it was not done to increase taxes.  It is, as I accept Justice Gordon pointed out earlier, it was done to ensure they pay a fair share of tax.  But it was anticipated the vast majority of working holiday makers would be non‑residents, and as a result this would be beneficial to them. 

GAGELER J:   So what are we looking for here?  Why are we being told this?  Is it some notion of legislative purpose that we are looking at?

MR LLOYD:   We say that the Income Tax Rates Act does not facially turn on nationality, it turns on whether or not you hold a visa.  And not just a visa, but two very specific types of visas.  Amongst the hundreds of different kinds of visas, these two visas have different tax implications, and so then the question is, is holding these two types of visas so bound to nationality ‑ and relevantly for this treaty, UK nationality ‑ that it should be treated as nationality being the discrimen, because if that is not the case, then – our position is it is not the case, and if it is not the case, then the comparison is not possible because there are no Australians in that scenario who have those visas, so you cannot do the comparison, so the appellant loses.

So what we are saying is, however, we accept that, notwithstanding that it is not in terms directed at UK nationals, or nationals at all, or nationality at all, we acknowledge that there is a link to nationality in the sense of one, on this assumption, one cannot have visas without being a foreign national, so there is a link there.  Then the question then is, well, is any tax discrimen that turns or has an effect that it only has effect on people of a foreign nationality, not all people of a foreign nationality, but of the people it has an effect on, it is only people of a foreign nationality, is that in itself enough?

We answer that question, and we ask the Court to answer that question no, that is not enough.  One has to characterise the legislation and be able to say, although it is expressed to be about a visa, it is actually there to affect this discrimination on the basis of nationality, that is what it is actually doing.  Now, the reason for that is, while we accept that the comparison that is required by Article 25.1 does look at the effect of the different tax burden, that is true when the discrimen is nationality.

In deciding whether or not something which is not in terms nationality, but might operate by reference somehow to nationality, then there is a question of characterisation, we say, that has to be done because in effect one way of putting it, that the commentators refer to as “disguised discrimination”, and, to be fair, the courts below also referred to that notion, I think Justice Logan primarily relied upon that notion, and once one is looking at disguised discrimination, the purpose of the legislation helps to uncover the disguise, we would say.  And so, in that sense, it is appropriate to have regard to what was sought to be achieved, and what was sought to be achieved was to encourage people to come to Australia on backpacking holidays.  It was intended to be ‑ ‑ ‑ 

GORDON J:   There is another way of course of looking at it, and that is to say one takes the tax regime as it currently is and one then has the overlay of the double tax convention in relation to its application to a particular individual and one does not look at – that is why the article is dealing with effect, because one then looks at the operation of Article 25 on the existing tax system and says is there a discrimination brought about because this person is on the right comparator on the grounds of nationality?

MR LLOYD:   Yes, but on our analysis, when one does that and one looks at Ms Addy, one says we cannot find an Australian national who has a working holiday visa and so we cannot do that comparison.

GORDON J:   Well, that is your answer, but if you take that out of the picture then one ‑ ‑ ‑

MR LLOYD:   But if you have taken that out of the picture and said you can do the comparison by disregarding it, then my friend has already won.  My question is should you be allowed to take it out of the picture.

EDELMAN J:   The premise of your submissions really is to accept the position that the appellant advanced, which is that there is two different ways of discriminating.  One is by effect and the other is by purpose.  You say that the argument on effect fails because there is no relevant comparator and you say the argument on purpose – well, perhaps you agree with the appellant that the argument on purpose fails because there is no disguised - or design of discrimination.

MR LLOYD:   I probably largely embrace that, although I would not quite put it that way.  I would say that it does turn upon effect, but whether or not something is nationality or not when it is not in terms nationality requires some kind of characterisation.  Is this law about these two specific types of visas, is that really a law that is directed to UK nationality?  If the answer is that it is, then you disregard it and then one looks at the effect.  But deciding whether or not you can disregard something as in effect disguised discrimination involves an assessment and ‑ ‑ ‑

EDELMAN J:   Characterisation is characterisation of the purpose, is it not?

MR LLOYD:   Well, here, yes.  But I should hasten to say this is only my first point on the issues that are relevant in looking at whether or not a tax discrimen focused upon two visas is really a proxy for nationality.  The first one is that it is, we say, at least relevant that it is part of legislation which was designed to benefit at least the vast bulk of working holiday makers and it was designed to encourage people to be working holiday makers.  So one does not normally see legislation even with discriminatory effects being done in that way.

GAGELER J:   So it was targeted at foreign nationals, but in a nice way.  Is that what you are saying?

MR LLOYD:   It was targeted at people – I mean, on the premise that only non‑Australians need visas, then it was to make attractive coming to Australia to work in rural locations to do fruit picking and the like, and if people were paying – if in fact working holiday makers were by and large non‑residents, they would face a very significant tax burden, and it was to give them a moderated tax burden.

GLEESON J:   Mr Lloyd, on your argument how do you determine whether holding a visa is relevant to identifying with an Australian who is in the same circumstances as Ms Addy?

MR LLOYD:   We say that assessment is done simply by the question that “the same circumstances” means the same tax-related circumstances, the same circumstances that could have an effect on tax.

GLEESON J:   Does that mean that it only becomes relevant because legislation has been passed which relies on the existence of the visa?

MR LLOYD:   I think so, yes.  The Income Tax Rates Act has been passed which makes in effect holding these visas the relevant tax discrimen.  So we say that is something that has to be the same, unless it is nationality.  What we are dealing with now is why should holding a visa be the same as nationality?  The case against us is that only foreign nationals can hold visas, so therefore it must be nationality.

We started off by saying that the first point is, to the extent that is relevant, this was designed to be encouraging of the people and in terms of human experience of discrimination one does not generally see it as being done through beneficial schemes.  That is the first point.  Another reason we say that the legislation does not operate as a proxy for nationality is that a UK national could have entered Australia on a different visa and then no income earned would be working holiday taxable income. 

So that suggests that there is a difference between mere nationality, because there are other visas where people would not be taxed in this way; they might be taxed more favourably or more beneficially, but they would not be taxed in this way.  So someone has made a choice to apply for this kind of visa and we say that that strongly suggests that the tax discrimen is not nationality but just the holding of the visa.

Likewise, a person who came to Australia on a working holiday visa could change their visa while they are in Australia.  So Ms Addy could have changed her visa while she was in Australia and then she also would not have earnt any working holiday taxable income.

GORDON J:   That just means, though, that the tax treatment for her in different periods is different.  It happens all the time under the tax system.

MR LLOYD:   I am not trying to make a tax point; I am trying to make a point as to is holding a visa so intimately connected to nationality that it should be treated as nationality?  Our point is that there are nationals of the United Kingdom and they can hold different kinds of visas and holding one of these two specific visas is not so closely connected.

Being a UK national does not mean you have to have a visa.  That is the first point.  It does not mean you have to have one of these kinds of visas.  Unlike the New Zealand law example, no one is deemed to have one of these kinds of visas.  There is nothing of that kind that is so closely linked between somebody being a national of the UK and having this kind of visa.  All that there is is somebody choosing to have this kind of visa.

Now, we would – I am sure the Court has read this – so I will not read it out, but we would embrace what is said by Justice Derrington on this topic at paragraphs 223 through to 225, and his Honour’s reasons for rejecting Justice Logan’s disguised discrimination idea, and also the reasons of Justice Steward at 343 through to 348, perhaps.

We say the legislation should not be seen as creating from this pre‑existing class as a proxy for UK nationality.  It should just be seen as a special tax treatment to benefit people who have chosen to have a particular kind of visa.  It is a tax applicable to people who hold visas.  It is not a tax that identifies them or treats them differently because they are UK nationals.  They could have different visas if they wanted.  So, in summary then - - -

GORDON J:   It is a question about where you enter the debate, is it not, really, because the Double Tax Convention point of view is if you have – and it is arguably what constitutes in the same circumstances – but the way in which the Convention is entitled to work is, yes, you – the contracting states are entitled to establish a tax regime as you like but you must treat nationals of the UK who are residents for Australian tax purposes in the same position.  So, the fact that you choose a particular visa is interesting but irrelevant, at one level.

MR LLOYD:   But, your Honour, the thing that troubles me by your Honour’s question is that the premise of it is that we have already lost.

GORDON J:   No, not at all.  I am trying to test this idea – the proposition you put here – you know, you could have chosen another visa, you could have done something else ‑ ‑ ‑

MR LLOYD:   But what we would say is ‑ ‑ ‑

GORDON J:   But the reality of it is we have a tax regime which treats particular kinds of taxpayers in particular ways.

MR LLOYD:   But what we would say is the treaty does not prevent Australia from discriminating against holders of particular visas, unless being the holder of a particular visa somehow means nationality.  So, on our view, we say the treaty is not directed to this issue because it is not nationality.  If one accepts that premise then one says this is not something the treaty is designed to do or does do anything about because, on that

premise, if holding this visa is not to be equated with nationality, then this is simply a case where there is no comparison, and when there is no comparison, there is nothing to be cured, because Australia and the United Kingdom did not agree for this exact circumstance.  Therefore, there is no problem to be rectified.

So, in summary, the factors we rely upon is that the visa is not something that the person has because of the UK nationality.  The visas are not something that Australian legislation deems UK nationals to hold – or require to hold.  A person only has a visa of this kind if they do it by their own choice.  The legislation was not done with a view to be detrimental to UK nationals, or foreign nationals more generally.  It was intended to encourage people. 

We say that those features, at least in combination, reveal that a tax directed towards holding two specific kinds of visas is not a tax on nationality, even though only foreign nationals will have to pay it.  It is still only a tax on visas and, if it does not engage the concept of nationality, the treaty is not engaged.

The idea that the treaty is not broad is referred to in the reasons of Justice Steward and Justice Derrington, but I can also give the Court one further reference which is in Vogel, which is under tab 26 of the bundle.  On page 807 of the bundle, at about three‑quarters of the way down in the middle of the paragraph at the bottom of the page, one sees the very common notion that the:

The nationality non‑discrimination is only violated if discrimination is based exclusively on the nationality of the taxpayer . . . This test also shows that the covert/hidden discrimination (id est discrimination that is based on another criterion that nationality but which typically discriminates non-nationals) is not prohibited by Article 24(1) -

We say that the article does not pick up tax laws that allow for different tax treatment by reference to specific types of visas because they are not proxies for nationality.  May it please the Court, they are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Lloyd.  Is there any reply, Mr Hyde Page?

MR HYDE PAGE:   Your Honour, there is only one point in reply, and it is that I would like to pick up on a feature of my learned friend’s submissions that I have observed on the two previous occasions where this matter has been argued in the courts.  That feature is that while the

argument always starts off being about whether or not Ms Addy was in the same circumstances as an Australian, as things go along the references based on nationality and to whether or not a visa is nationality become more and more ubiquitous until – and I believe I am quoting my learned friend here, accurately – the question ends up being “is the holding of these two visas so bound to nationality that it should be treated as nationality”.

Now, obviously, there are valid ways of paraphrasing a legal question in any particular scenario, but when the question is paraphrased in that way what does obscure is the textual feature of Article 25 I noticed earlier, which is that it specifically seeks to prevent discrimination against foreigners who are tax resident in Australia.

With that in mind the question, I would submit, is properly framed as:  is the holding of these two visas something that prevented Catherine Addy from being in the same circumstances as an Australian who is also a tax resident and who is otherwise identical to Catherine Addy.  The answer to this question, in the appellant’s submission, is the possession of a visa is not something that prevents them being in the same circumstances.  A foreigner needs a visa in order to achieve Australian tax residency.  That is a general truth that is not controverted by the fact that a person in detention may, under the right circumstances, be able to be both an Australian national and also have a working holiday visa.

These questions should be resolved by reference to the facts before the Court and the generality of cases rather than obscurities.  And the second reason why the answer to the question is no, and the two are in the same circumstances, is that if Catherine Addy had been an Australian instead of a UK national and taken exactly the same steps she would have been liable for tax at the lower rate.  The conclusion one should therefore draw is that the harsher treatment was imposed on the basis of nationality.  Those are the submissions.

KIEFEL CJ:   The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow.

AT 12.08 PM THE MATTER WAS ADJOURNED