In February this year, a Full Federal Court decision (Harding v Commissioner of Taxation) threw what practitioners knew about Australia’s residency rules on its head. It came after a Federal Court decision found that a taxpayer was a resident for tax purposes, with the FFC overturning that decision.
It was after this that the ATO sought special leave to appeal the FFC decision to the High Court. The case sets an important precedent (or, it will) because although the taxpayer had lived outside Australia for 17 of the previous 20 years, the ATO argued he was still a resident of Australia under incumbent rules. Commentators have said that the situation of the case demonstrates that the tax residency rules for individuals leaving Australia are complex and can result in uncertainty.
The basic facts of the case were previously sketched out on this website, and a wider ranging article explaining this further featured in Tax & Super Australia’s member magazine The Taxpayer in the May issue.
The central question was whether a taxpayer (a Mr Glenn Harding) was a non-resident of Australia for tax purposes in the 2011 income year. That is:
whether he resided in Australia in 2011 (the “resides” test). This is the primary residency test. Some of the factors used to assess this test include the amount of time an individual was physically present in Australia, the intention and purpose of their presence in Australia, family and business/employment ties to Australia, maintenance and location of assets, and any social arrangements in Australia.whether his domicile was in Australia. Under this subsidiary test, you are a resident of Australia if your domicile is in Australia, unless the Tax Commissioner is satisfied that your “permanent place of abode” is outside Australia.
To the first question, the Full Federal Court ruled that Harding did not reside in Australia. This is despite him maintaining ownership of the family home, bank accounts, his superannuation fund — all of them maintained in Australia. Indeed, in the year that was in question, he even made a substantial property investment.
To the second question, the Full Federal Court ruled that despite not having a permanent style of accommodation (such as a long-term lease, or ownership of a property in which he was living), Harding had nonetheless established that his permanent place of abode was in Bahrain.
📷
Don’t miss this comprehensive session, which will cover the complexities associated with Australia’s tax residency and immigration laws, especially in light of the above case. Attendees will be provided with a detailed summary of the relevant issues that they must consider when dealing with individuals who are either arriving or departing Australia. The seminar is in Melbourne, and is to be held on 6 June. Details are here.
A sensible outcome or not? The initial decision of the Federal Court was concerning for expatriates working overseas or those seeking to work overseas. In taking a narrow view of what constitutes a permanent place of abode – focusing on the type of accommodation – that interpretation would have made it more difficult for these individuals to break tax residency. This was even if they intended to live overseas indefinitely.
The overturning of that decision by the Full Federal Court is a victory for Australians going to work overseas who have no definitive intention of returning to Australia. A better balance seems to have been struck by focusing on whether these individuals, on the facts at hand, are living in an overseas country permanently.
While the type of accommodation may be relevant, it is not of itself determinative. There is no requirement to adopt a permanent-style of accommodation, such as a long-term lease or to actually purchase a property to live in. While this may assist with a finding of non-residency, it is not a precondition. Rather, the totality of each case must be assessed, with a view to determining an individual’s intention.
# [ATO], [case law], [federal court], [residency]
Comments