Last October the Federal Court ruled the controversial 15 per cent levy breached tax treaty clauses with the United Kingdom.

Under the tax, working holidaymakers must pay 15 per cent tax on earnings under $18,200. Australians don't pay tax on similar earnings.

The Australian Taxation Office on Thursday won its appeal in the Federal Court, in a case that involved British backpacker Catherine Addy who was in Australia on a working holiday-maker visa in 2015 until 2017.

In October's ruling the court found the tax was a "disguised form of discrimination based on nationality".

But Justice Simon Steward said the backpacker was not treated differently for tax reasons because of her nationality.

"Her income was of this kind because she chose to apply for and then hold a working holiday visa," he said in his ruling.

"Her nationality did not compel her to apply for this class of visa in order to enter Australia."

Justice Roger Derrington said she should not have been considered a resident for tax purposes.

"Her circumstances did not reflect the attributes of a person who lived here, either permanently or for a considerable time, and nor do they support a conclusion that she had a settled or usual abode here.

"She was on an extended holiday albeit one which involved engaging in employment in order to fund its continuance."

Justice Jennifer Davies agreed Ms Addy shouldn't have been considered a resident for tax purposes, but she considers the backpacker tax discriminatory.

Australian Associated Press