Harding’s Case Resolves Residency Dilemma

Case Overview

In February this year, the Full Federal Court allowed the taxpayer’s appeal in Harding v Commissioner of Taxation [2019] FCAFC 29 and held that Mr Harding was not an Australian tax resident.

The case concerned the definition of “resident” and “resident of Australia” in our income tax law and its application to individuals. In this regard, a person is not only a resident if they reside in Australia but includes a person whose domicile is in Australia and who does not have a “permanent place of abode” outside Australia.

The Court held that when assessing the tax residency of an individual, the phrase “permanent place of abode” should be interpreted more widely than by reference to the individual’s house or dwelling and consideration be given to whether the individual is living permanently in a particular country or state. In this case, the Court found that Mr Harding had ceased his residence in Australia and permanently based himself in Bahrain.

The Verdict

In April, the Commissioner of Taxation applied to the High Court for special leave to appeal the decision of the Full Federal Court. On 13 September, the High Court refused the Commissioner’s special leave application. The decision provides a definitive test for Australians working in other countries as to whether they have established a home in that country and have ceased their ties with Australia.

Further Considerations

Harding’s case is a good outcome for the taxpayer and providing clarity around the “permanent place of abode” test. However, it is prudent to consider that there are other circumstances where it may be more difficult for an individual to establish that they have a permanent place of abode in a particular country. For example, it is not uncommon for an individual to work in a number of countries as they move from one project to another, or work in head office in one country for a time before transferring to the business operating in another country.

Board of Taxation Review

The Government is still to announce any position regarding the review of the residency rules for individual’s following the release of the Board of Taxation’s consultation guide in September 2018.