Australia: Update on tax residency – High Court refuses to grant ATO special leave to appeal in Harding

Last Updated: 23 September 2019
Article by Fletch Heinemann

The High Court has refused to grant the ATO special leave to appeal the Full Federal Court's decision in Harding v Commissioner of Taxation [2019] FCAFC 29. 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.

In our previous article, we describe 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.

You can access this article here.

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
  • 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.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

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