System Information
Operating system: Windows 10
Graphics card: GTX 1070

Blender Version
Broken: 3.1.2, 3.0.0, 2.93.5
Worked: never?

Short description of error
When adding a background or reference image Empty and enabling "Only Axis Aligned", there is a small angular tolerance where the view is still considered "axis aligned". This tolerance seems to increase drastically with smaller Empty scales, up to the point where the image is always shown from all angles, despite the "Only Axis Aligned" option being enabled (for scales smaller than 0.005 mostly).

A workaround is to set the Image Size to smaller values and keeping the Empty scale close to 1.

Exact steps for others to reproduce the error

• Create a new background/reference image
• In the Empty settings, enable "Only Axis Aligned"
• Scale the empty to very small values
• View the image from an axis aligned direction and slowly rotate away, notice that the image takes quite a large angle to become invisible.
• From any viewing direction, scale the Empty below values of ~ 0.005 and notice the "Only Axis Aligned" option losing its function.

I'm not sure if this is a technical limitation but it feels like unintended behavior. Keeping in mind to use the Image Size option instead of object scale is a good workaround (and probably the intended way to do it), but might be hard to discover for users.