Changes to the residency rules, but will they last?


The 2019 full Federal Court decision in Harding v Commissioner of Taxation may make it easier for expatriates to prove that they are non-residents for tax purposes. By doing so, only their Australian-sourced income has to be declared on their tax return (not their worldwide income).

The Full Federal Court ruled that a taxpayer, Mr Glenn Harding, was not an Australian resident for tax purposes. This overturned an earlier decision of the Federal Court (single judge) which held that the taxpayer – who was an Australian citizen living outside Australia for a few years, and who had established a home overseas – remained a tax resident as his overseas accommodation (a rented, fully-furnished apartment) was not considered sufficiently permanent.

From 1990 until 2006, Harding had worked in the Middle East. His wife and small children relocated to Australia in 2004, with Harding joining them two years later. He stayed and worked in Australia until 2009 when he took up a position in Bahrain, Saudi Arabia, on a substantially increased salary.

For Harding, an additional benefit of working in Saudi Arabia was that his income would not be taxed. Upon arriving in Bahrain, he rented fully furnished two-bedroom apartments. During the course of living there, he did not make any substantial domestic acquisitions to use in these apartments.

The plan was that his wife and children would join him in 2011 when one of this children was due to finish middle school, at which point Harding would purchase a larger Bahrain property in which to live. However in 2011 his wife decided to remain in Australia, and the couple separated shortly after.

The question was whether Harding was a non-resident of Australia for tax purposes in the 2011 income year. That is:

  1. Whether he resided in Australia in 2011 (the “resides” test). This is the primary residency test. Some of the factors used to assess this test include the amount of time an individual was physically present in Australia, the intention and purpose of their presence in Australia, family and business/employment ties to Australia, maintenance and location of assets, and any social arrangements in Australia.
  2. Whether his domicile was in Australia. Under this subsidiary test, you are a resident of Australia if your domicile is in Australia, unless the Tax Commissioner is satisfied that your “permanent place of abode” is outside Australia.

To the first question, the Full Federal Court ruled that Harding did not reside in Australia. This is despite him maintaining ownership of the family home, bank accounts, his superannuation fund — all of them maintained in Australia. Indeed, in the year that was in question, he even made a substantial property investment.

To the second question, the Full Federal Court ruled that despite not having a permanent style of accommodation (such as a long-term lease, or ownership of a property in which he was living), Harding had nonetheless established that his permanent place of abode was in Bahrain.

To read about the Federal Court’s reasoning, and the implications for Australians who head overseas and seek to prove their non-residency, members can read the full version of this article in the May issue of The Taxpayer magazine. Tax & Super Australia members receive this magazine as a member benefit. The Taxpayer online is generally available to members from the beginning of each month, with the print version mailed one week later.


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