In March 2019, aircraft engineer Glenn Harding won an income tax case in the Full Federal Court, after his appeal was rejected the Federal Court in June 2018.
The ATO said that for the 2011 tax year, Harding had to pay income tax even though he was living in Bahrain, where he moved in 2009 and stayed for five years.
The tax authorities applied for special permission to appeal the Full Federal Court’s decision but has now been turned down.
This means that the Full Federal Court’s decision stands as a precedent, establishing that an Aussie expat who can prove residency within his adopted country will not be automatically reinstated as an Australian tax resident.
The Full Federal Court overturned the first decision, where the trial judge held that Harding did not have a “permanent place of abode” outside Australia because he did not occupy each of his apartments in Bahrain with the intention of residing in those apartments permanently.
It decided that the relevant question was not whether a person’s specific house or apartment was permanent but whether Harding had:
- Abandoned his place of abode in Australia; and
- Established himself permanently in Bahrain.
What does the decision mean?
Law firm Coopers Grace Ward said: “Now that the High Court has refused to grant special leave, there are no further avenues of appeal for the ATO.
“Australians living overseas can rely on the Full Federal Court’s decision in determining whether they have established a permanent place of abode outside Australia.
“This decision is comforting news for Australians who no longer live in Australia and have settled permanently in another country.
“For those people, it is important to continue to gather evidence that they have a permanent place of abode in a country outside Australia.
“This is because, during any review by the ATO, the taxpayer must establish that on the balance of probabilities they have a permanent place of abode outside Australia.”
The Full Federal Court’s decision in Harding provides “comfort in relation to the permanent place of abode test”, the law firm added.
However, an individual can be a tax resident of Australia under any one of the following tests:
- The ordinary meaning of the word ‘resides’ test;
- The domicile and permanent place of abode test;
- The 183 day test; and
- The Commonwealth superannuation test, which assesses if an individual is contributing member of the Public Sector Superannuation Scheme or the Commonwealth Superannuation Scheme.
“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,” Coopers Grace Ward 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.”
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.