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Expat scores tax victory against ATO over place of residence
ABC News, 26 February 2019 – link to full article
This story reports on the Full Federal Court appeal by Mr Glenn Harding (read judgement), an aircraft engineer who had been living in Bahrain in various serviced apartments and working in Saudi Arabia, whilst waiting to be joined by his family.
The question on appeal was whether Harding was a resident of Australia as defined under section 6 of the Income Tax Assessment Act 1936. The definition of “resident of Australia” effectively has four separate tests:
1) a person who resides in Australia (The Resides Test);
2) a person whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia (The Domicile Test);
3) a person who has actually been in Australia, continuously or intermittently, during more than half the year of income, unless the Commissioner is satisfied that the person’s usual place of abode is outside Australia and the person does not intend to take up residence in Australia (The 183 Day Test); or
4) an eligible employee under the Superannuation Act 1976 or a member of a superannuation scheme established by deed under the Superannuation Act 1990 (The Commonwealth Superfund Test).
Harding lived outside Australia in the same block of serviced apartments for more than 5 years, but moved between various apartments in that block. It was agreed that Harding did not “reside in Australia”, however as a person whose domicile is Australia, he will be considered a resident unless the Commissioner is satisfied under The Domicile Test that he has a “permanent place of abode” outside Australia.
This case therefore focused on whether the meaning of “permanent place of abode” meant that the actual unit of accommodation needed to be permanent, or that the general place he lived (Bahrain) needed to be permanent. The Full Federal Court overturned the original decision, stating “the “place” of abode, in the specific legislative context here, also refers to a town or a country. In 2011, Mr Harding’s permanent place of abode was Bahrain. That was the “place” where he was living.”
The court also warned against using a “checklist” approach, “Indeed, the present case may well, with respect, offer an example of a risk of seizing upon a particular fact which one might find in a “check list”, temporary accommodation, to the detriment of applying the ordinary meaning …”.
While the specific circumstances of this case may be unusual, the finding that a place of abode can refer merely to a city or country is critical, especially in circumstances where reliance may have been wrongly placed on the various ATO provided checklists and examples referring to a requirement to set up a permanent home in the other country.
The consequences of residence status are not merely for the question of taxation on worldwide income, but the change in residence that must have occurred at some point can also trigger liabilities under CGT rules, higher education loans, superannuation entitlements, and even the residence of companies, where a company’s residence status has depended upon the residence of a controlling shareholder.
At the time of writing it was uncertain whether this case will be appealed to the High Court by the ATO. It may also provide further impetus for the Board of Taxation’s review into a simplification of the residence rules.
Should you wish to understand more about how this ruling might affect you or your business, contact ICGTAX at enquiries@ICGTAXGlobal.com