Mar 2019 4 Minutes
Non-Resident – Permanent Place Outside Australia
The Full Court in Harding v FCT  FCAFC 29, Full Federal Court, Logan, Davies and Steward JJ, 22 February 2019 has overturned an earlier decision and ruled that the taxpayer, (Mr Glenn Harding) had a permanent place of abode in Bahrain and allowed his appeal against a decision that he was a resident of Australia.
The issue was whether the taxpayer had a "permanent place of abode" in Bahrain in the 2011 income year. If not, he was a resident of Australia on the basis of his domicile. Evidence in the case centred on whether a serviced apartment differed from a permanent home for tax purposes.
Mr Harding had moved to work in Bahrain in June 2009 from Australia, with plans for his wife and children to join him there at the end of 2011 after one of his children finished high school. However, the taxpayer and his wife separated in October 2011 and his wife never relocated from Australia. From June 2009 to June 2011 Mr Harding lived in a number of furnished apartments within the same complex whilst waiting for his family to relocate to Bahrain.
The ATO argued that Mr Harding was a resident of Australia because his accommodation in serviced apartments was only of a temporary nature and he therefore did not have a permanent home outside Australia. However, the Full Federal Court on appeal disagreed, and said that "place" of abode also refers to a town or country.
The Court stated that it was natural to assume that an individuals’ close personal and familial ties would usually outweigh their employment or business interest. However, the Court found that based on the evidence, this was not the case and that Mr Harding placed his personal work satisfaction ahead of his personal relationships. The Court found that Mr Harding was not prepared to alter his pursuit of employment opportunities in the Middle East to be with his wife and family. The most poignant evidence of this being that during the deterioration of his marriage, Mr Harding did not relocate back to Australia and that during holidays he did not regularly return to Australia to see his children, but visited other places such as USA, UK and Bali.
This resulted in the Court ruling that Mr Harding’s departure to the Middle East in 2009 was a permanent move based on the following main factors:
- Mr Harding had previously worked and lived in the Middle East for 16 years;
- He was unable to obtain employment in Australia at a level of remuneration which satisfied him;
- Prior to leaving Australia he had packed all of his personal belongings to take with him and did not leave anything for which it was necessary for him to return to;
- He sold his powerboat and vehicle prior to leaving;
- Prior to leaving Australia, he made enquiries as to his ability to live and reside in Bahrain and obtained a visa to live there;
- He obtained a lease on a two bedroom apartment; and
- Whilst in Bahrain, Mrs Harding visited him and they inspected houses which they might acquire and enrolled in a British School for his son to commence in 2011.
Thus based on the above specific circumstances, the Court ruled that Mr Harding had a permanent place of abode outside Australia and was therefore not an Australia tax resident. The implication being that Mr Harding’s world-wide income was not subject to Australian taxation, only his Australian sourced income.
This decision, whilst hailed as a “welcomed victory” by some commentators, needs to be applied with caution. We reiterate that each case will still be determined on its own circumstances and that in the Harding case, the Court stated that “the circumstances of this case are most rare”.
Residency is based on each individual ex-pat’s facts and circumstances. Each case will differ from every other expat. Australia’s tax residency tests are unnecessarily subjective and vague, defined by principles developed in common-law court cases that have evolved over time. This means that for most, determining residency status is complex and potentially fraught with danger if you get it wrong.
If you would like to discuss the above case or Australian tax residency issues, please contact Walker Wayland and speak to Ariane.