The biggest personal tax residency case in 40 years just got bigger. The taxpayer Mr Glen Harding having lost his case in front of a single judge in the Federal Court has won an emphatic victory in the Full Federal Court in a decision handed down on 22 February 2019.
In Harding v Commissioner of Taxation [2018] FCA 837 in a unanimous decision the Court found that Glen Harding was not a resident of Australia because;
- he did have a Permanent Place of Abode in Bahrain; and
- he did not reside in Australia;
As we reported last year in our blog (an Appeal to Common Sense) the taxpayer, Glen Harding, appealed from an initial Federal Court decision against him.
The Facts of Harding’s case were, in essence, that Mr Harding, in his evidence, had abandoned his residence in Australia, with the intention never to return. However, in establishing life in Bahrain, he lived in an apartment building called “Classic Towers”. Initially he took a two bedroom apartment because he believed that his wife and children would visit him from time to time. He remained in that apartment from 10 June 2009 until 9 June 2011. When his marriage broke down around 2011 and he realised that his wife would not be moving to Bahrain, he moved in to a one bedroom apartment where he remained until 9 June 2012.
The case was all about whether Mr Harding was a resident in Australia for the income tax year ended 30 June 2011 and the single judge in the first instance found that because of the style of accommodation that Mr Harding chose in Bahrain, being a fully furnished apartment, he had not established a permanent place of abode in Bahrain, despite several other factors which demonstrated that he was living in Bahrain.
Several principles of residency law were analysed in detail by the Court. However, the main focus was on the question of what was meant by the phrase ‘Permanent Place of Abode’. A clear understanding of that phrase is critical because of the definition of tax residency in Section 6(1) of the Income Tax Assessment Act 1936.
That definition says that a person is a resident of Australia if they reside in Australia and includes a person who is Australian domiciled unless the Commissioner would be satisfied that the person has established a Permanent Place of Abode outside Australia.
Most Australian expats who move overseas will remain domiciled in Australia and hence, unless they can show that they have established a permanent place of abode overseas, will remain fully taxable in Australia. It has never been the case that an Australian who is itinerant overseas avoids taxation in Australia.
So the question ‘what is a Permanent Place of Abode?” is critical. In their joint decision, Davies and Steward JJ with Logan J in agreement, indicated that the word ‘place’ should be read as including a reference to a country or state and they expanded by saying;
In the context of the legislative history, in our view, the phrase “place of abode” is not a reference, as one might have thought, only to a person’s specific house or flat or other dwelling. If that had been Parliament’s intention it would have used the phrase “permanent abode” rather than “permanent place of abode”. The word “place” in the context of the phrase “outside Australia” in subpara (i) invites a consideration of the town or country in which a person is physically residing “permanently”.
In taking that approach, the Court referred to the analysis of Sheppard J in Applegate’s case where he indicated that as follows:
“place of abode”’ may mean the house in which a person lives or the country, city or town in which he is for the time being to be found. I am of the view that the latter is the meaning of the expression used in s. 6(1.) of the Act. Thus a person might be correctly said to have a permanent place of abode in, say, Vila, notwithstanding that during a given period he lived in a number of different establishments occupying each for only a relatively short period. His case is no different from one where a person, such as the appellant here, lives, for a substantial period, in the same house.
So here we see, for the first time, a definite focus by the Federal Court on the permanence in a particular jurisdiction as being of paramount importance rather than the particular ‘type’ of accommodation that a tax payer chooses to live in within that jurisdiction.
If this decision stands, it would be a victory for common sense, because if a person is living permanently in a particularly city it should not be critical what type of accommodation the person chooses to live in.
Author: Matthew Marcarian
