THE shock court ruling won't see the scrapping of the federal government's unpopular backpacker tax, but it's an embarrassing defeat which industry says should spur reform to end the confusion which has dogged the horticulture sector since 2016.
Last week the Federal Court ruled the so-called backpacker tax should not apply to workers on 417 or 462 visas if they have residency status.
Since 2016, working holiday makers earning less than $18,200 have been taxed at a rate of 15 per cent, while Australian tax residents who earned less than that were under the tax free threshold and did not pay income tax.
The Federal Court ruled it was discriminatory to tax residents at different rates based on their nationality.
Australia has tax treaties with non-discrimination clauses with eight countries, in the UK, US, Germany, Finland, Chile, Japan, Norway, and Turkey, meaning the court ruling could potentially impact up to 75,000 workers.
Peak horticulture representative Ausveg said the backpacker tax had made it more difficult to source labour for industries that already find it hard to fill jobs.
In 2012-13, Australia had more than 258,000 Working Holiday Makers enter the country on 417 and 462 visas. That figure is now down to about 209,000.
"Ausveg, along with other horticultural associations, advocated strongly that the backpacker tax would adversely affect the number of backpackers who came to work on Australian farms, which are a vital part of the workforce puzzle for Australia's horticulture industry," Ausveg chief executive, James Whiteside, said.
"This has proven to be the case and it is extremely disappointing that this latest ruling will only add more confusion.
"The debate around the backpacker tax was highly damaging to the industry, as growers were held to ransom by political games and our reputation as a desirable destination for backpackers was tarnished."
Ausveg public affairs manager, Tyson Cattle, said the backpacker tax was ill-conceived and counterproductive.
"The government used the backpacker tax as a cash grab and as the court has shown, it's blown up in their face," Mr Cattle said.
"The general consensus among the industry is the backpacker tax was the start of the major workforce headaches for horticulture industries. It's been absolutely frustrating for growers and working holiday makers."
Mr Cattle said government should admit to its failings and re-engage with the sector on a solution.
"The first step is to seek clarity from the Australian Taxation Office around the definition of "resident" and "non-resident".
"We would love to see the backpacker tax killed off. There needs to be recognition from the government they have created an absolute mess across the sector."