In June 2018, aircraft engineer Glenn Harding lost his Federal Court appeal against an undisclosed tax assessment from the Australian Tax Office (ATO) for tax year 2011 – stating he had to pay income tax even though he was living in Bahrain, where he moved in 2009 and stayed for five years.
He subsequently appealed again to the Full Federal Court of Australia (FFCA), on which at least three judges must sit, which found that the original judgement “adopted too narrow a conception of permanent place of abode”.
The FFCA made a U-turn on its verdict and said he had a “settled purpose” and Bahrain passed the permanent place of abode test.
Harding left Australia in 2009 intending to leave permanently with his family joining him later, but he and his wife separated in 2011.
Advisory firm EY said: “The decision is a clear rejection of the ATO’s practice of assessing an individual’s residency based on that of their family.
“Harding’s case demonstrates the need for detailed analysis when working through the current residency rules.
“The case is an important precedent, with the most detailed discussion to date of key aspects of interpreting the residence tests by the Full Federal Court.
“The finding in favour of the taxpayer is reassuring in the context of the ATO taking a very broad approach.”
Harding left Australia to work in the Middle East, while his wife and family remained in the family home. They had been set to join him later, and on this basis he lived in temporary accommodation in a serviced apartment block in anticipation of moving into a permanent home.
When he separated from his wife in 2011, he moved into another serviced apartment within the same complex, which meant he did not have to move many household items only personal belongings and clothes.
The ATO disagreed with Harding’s assessment that this was his permanent place of abode and ruled that he had to complete an assessment and pay income tax on his earnings, despite no longer living in Australia.