Addy v Commissioner of Taxation

The case of *Addy v Commissioner of Taxation* concerned an appeal to the High Court of Australia by Ms Addy, a United Kingdom national, against the Commissioner of Taxation. The dispute arose from the application of new tax rates introduced by Part III of Schedule 7 to the *Income Tax Rates Act 1986* (Cth) to individuals holding a Working Holiday (Temporary) (Class TZ) (Subclass 417) visa. Ms Addy, who was an Australian resident for tax purposes, argued that these new rates imposed a more burdensome tax than that applied to Australian nationals deriving income from the same source during the same period, thereby contravening Article 25(1) of the Convention between Australia and the United Kingdom for the Avoidance of Double Taxation.

The central legal issue before the High Court was whether the application of Part III of Schedule 7 to the *Income Tax Rates Act 1986* to Ms Addy, a United Kingdom national and Australian tax resident holding a working holiday visa, contravened Article 25(1) of the Australia-United Kingdom Double Taxation Convention. Article 25(1) provides that nationals of one contracting state shall not be subjected in the other contracting state to taxation which is other or more burdensome than the taxation to which nationals of that other state in the same circumstances are or may be subjected. The Commissioner contended that the differential taxation was based on visa type, not nationality, and that an Australian national could not be in the "same circumstances" as Ms Addy because they could not hold a working holiday visa.

The High Court, allowing Ms Addy's appeal, reasoned that Article 25(1) of the Convention prohibits discriminatory taxation based on nationality. The Court found that the differential tax rates imposed by Part III of Schedule 7 were indeed more burdensome for Ms Addy, a United Kingdom national, than for Australian nationals in comparable circumstances. The Court rejected the Commissioner's argument that the "same circumstances" requirement meant that a hypothetical Australian comparator must be able to hold the same visa. Instead, the Court held that the relevant comparison was between a United Kingdom national holding a working holiday visa and an Australian national who is a resident for tax purposes and derives income from the same source. The Court concluded that the tax treatment of Ms Addy was discriminatory on the basis of her nationality, contrary to the Convention.

The High Court ordered that the appeal be allowed with costs, setting aside the orders of the Full Court of the Federal Court of Australia and dismissing the appeal to that Court.