Contributed by Fletch Heinemann, Partner, Sarah Lancaster, Special Counsel and Murray Shume, Special Counsel, Cooper Grace Ward Lawyers
The High Court has refused to grant the ATO special leave to appeal the Full Federal Court’s decision in Harding v FC of T 2019 ATC ¶20-685. The effect is that the Full Federal Court decision stands.
In Harding, the Full Federal Court overturned the first instance decision, where the trial judge held that Mr 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 dwelling in those apartments permanently.
The Full Federal Court decided that the relevant question was not whether a person’s specific house or apartment was permanent but whether Mr Harding had:
- abandoned his place of abode in Australia, and
- established himself permanently in Bahrain.
What does this mean for the permanent place of abode test?
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.
Are there circumstances where the permanent place of abode test remains a risk?
There are still risks for taxpayers who are no longer living in Australia but may not have settled or established themselves permanently in one country.
It is relatively common for Australian citizens to have lived outside Australia for many years but in multiple countries.
The question will be whether they have established a permanent place of abode in each country where they have lived.
Some of the specific circumstances that we have seen where there are still risks that Australians have not established a permanent place of abode outside Australia based on the Full Federal Court’s decision in Harding are:
Risk #1 — Australians working on yachts
Australians living and working on yachts may find they are unable to identify a particular country where they are permanently living.
This will include where the yacht is their home and is travelling through waters of different countries.
Risk #2 — Australians setting up offices for new operations in a different country
Australians who move overseas permanently to set up new operations may also be at risk — if they start work in one country, with the intention of subsequently moving to another country.
Mr Harding always intended to live in Bahrain permanently and commute to Saudi Arabia. However, hypothetically, if Mr Harding intended to live in Bahrain for an initial six-month period, and then move to Saudi Arabia after that, then Bahrain would not have been the country where he intended to live permanently.
Similarly, an individual undertaking a 12-month orientation in the head office in Hong Kong, before setting up a new office in southern China, may not meet the threshold of having a “permanent place of abode” outside Australia for the time spent living and working in Hong Kong.
Risk #3 — Regional roles
Australians taking on Asia-Pacific roles, or other regional roles, that require time spent living and working in different countries may also be at risk.
There is now a significant distinction between:
- establishing a home in one country, and then travelling as required by work; and
- moving between countries as required by work operations and projects.
This was an issue raised in the recent AAT decision in Handsley v FC of T 2019 ATC ¶10-495, where Mr Handsley had abandoned his residence in Australia but had not established a permanent home in a particular country outside Australia.
Are there other risks in relation to tax residency?
The Full Federal Court’s decision in Harding provides comfort in relation to the permanent place of abode test.
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.
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.
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.
[This article was originally published in CCH Tax Week on 20 September 2019. Tax Week is included in various tax subscription services such as The Australian Federal Tax Reporter and CCH iKnow. CCH Tax Week is available for subscription in its own right. This article is an example of many practitioner articles published in Tax Week.]