The Commissioner of Taxation will adopt the Full Federal Court’s interpretation of a “place of abode” following the decision in the Harding tax residency case, but he stressed that each case will turn on its individual circumstances.
The ATO has released its decision impact statement following Harding v Commissioner of Taxation, where the Full Federal Court’s decision went in favour of the taxpayer, ruling that a “permanent place of abode” should be interpreted more widely to consider whether a person is living permanently in a particular “country or state”, and not just the permanence of a specific house, flat or dwelling.
The Commissioner’s special leave application to the High Court was eventually refused.
In its decision impact statement, the ATO said it would review Taxation Ruling IT 2650, which has stood for 28 years, to reflect the view of the Full Federal Court, particularly how the interpretation of “place of abode” can also refer to a country and not only a dwelling.
“Regarding the domicile test, the Commissioner will apply the Full Federal Court’s construction and, in determining whether the Commissioner is satisfied that a person’s permanent place of abode is outside Australia, will consider whether the person has definitely abandoned residence in Australia, and commenced living permanently in a specific country overseas,” the statement said.
“In deciding whether the person’s permanent place of abode is outside Australia, the Commissioner will consider the facts and circumstances surrounding the person’s departure from Australia, their arrangements in relation to the overseas country and nature of their presence there.”
The Commissioner also stressed that each case would be dependent on its individual circumstances.
“Any pattern of working overseas and returning to Australia at intervals must be examined against the individual circumstances. This case stands for no higher proposition than that Mr Harding, when his circumstances were examined, was found not to reside in Australia,” the ATO said.
“Each case will turn on its facts. The facts in this case provide an illustration of where a person’s permanent place of abode is outside Australia and are an application of the law to the specific facts of that case.”
The Tax Institute’s senior tax counsel, Professor Robert Deutsch, said the decision impact statement emphasises the importance of the facts in each given case.
“Elevating the findings in one particular case to a statement of principle is and has always [been] dangerous. It is a natural tendency to do so, but it needs to be resisted as almost every aspect of the residency test is fact specific,” Professor Deutsch told Accountants Daily.
“It is pleasing to see that the ATO has indicated a willingness to revise its ruling [Taxation Ruling IT 2650] in accordance with the Federal Court decision in Harding.”
The Harding case
Mr Harding, who departed Australia in 2009 to live and work in the Middle East, had moved between fully furnished apartments in Bahrain while waiting for his wife and child to join him.
The ATO assessed Mr Harding on the basis that he was a tax resident of Australia by arguing that the taxpayer did not have a “permanent place of abode” outside Australia because the apartment was only “temporary”.
The Full Federal Court overturned the Federal Court’s decision, ruling that a “permanent place of abode” should be interpreted more widely to consider whether a person is living permanently in a particular “country or state”, and not just the permanence of a specific house, flat or dwelling.