Australian Tax Office is denied leave to appeal in Harding residence case

Thursday, 19 September 2019
The Australian Tax Office (ATO) has been refused leave to appeal the Full Federal Court’s decision in the important residence case of Harding v Commissioner of Taxation (2019 FCAFC 29), thus establishing it as a precedent in disputes over tax residence.

Mr Harding is one of the thousands of Australian nationals who have worked overseas for long periods, but whom the ATO continued to regard as tax resident because it considered he had retained Australia as his permanent place of abode. He had retained a home in Australia, where his family lived while he was working abroad, but naturally he also had a home in Saudi Arabia, where he worked.

In fact, while working in Saudi he had moved between different rented apartments at different times. The ATO regarded this as meaning that he had not established a permanent place of abode there, and so his permanent place of abode must be Australia.

In 2018, Harding challenged the ATO's opinion in the Federal Court, where he lost. He then appealed to the Full Federal Court. This time, in March 2019, he won, the Court taking the position that 'permanent place of abode' for tax residence purposes did not mean a particular building, but rather the country where the taxpayer lived.

The ATO applied for special permission to appeal this decision, but have now been turned down. The effect is that the Full Federal Court decision stands as a precedent, establishing that an expatriate Australian can move house within his adopted country without being automatically reinstated as an Australian tax resident.

'There are no further avenues of appeal for the ATO', commented law firm Cooper Grace Ward (CGW). 'This decision is comforting news for Australians who no longer live in Australia and have settled permanently in another country.' However, the firm emphasised that there are still risks for expats who may not have settled or established themselves permanently in one country.

An individual can be a tax resident of Australia under any one of four tests, said CGW. These tests are: the ordinary meaning of the word 'resides'; the domicile and permanent place of abode test; the 183-day test; and the Commonwealth superannuation [pension] test.

'Most of the ATO audit activity we see continues to be targeted at the ordinary meaning of the word 'resides', and whether a person will continue to 'reside' in Australia based on their connections with Australia', CGW said. 'Taxpayers will need to ensure their evidence covers both the establishment of their permanent place of abode outside Australia, as well as the fact that they have stopped residing in Australia.'


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