Harding case: Full Federal Court clarifies definition of 'permanent abode'

The court rejected the Australian Taxation Office’s residency assessment, upholding an appeal made by Brisbane-based Cooper Grace Ward on behalf of Australian citizen Glenn Harding.

What happened in Mr Harding’s case?

Mr Harding permanently departed Australia in 2009, and started living in an apartment in Bahrain and commuted across the causeway to his permanent position in Saudi Arabia.

The plan was that Mr Harding’s wife and youngest son would join Mr Harding in Bahrain at the end of 2011, when their second son finished high school in Australia. Until then, Mr Harding’s wife would continue to live in the family home on the Sunshine Coast.

Mr Harding bought a car in Bahrain for his wife, enrolled his youngest son in school in Bahrain and looked for a family house in Bahrain when she visited. But Mrs Harding never moved to Bahrain, and they subsequently separated, and then divorced.

The ATO assessed Mr Harding on the basis that he was a tax resident of Australia for the 2011 income year. It argued that he did not have a 'permanent place of abode' outside Australia, because his first apartment was only temporary.

The ATO also pointed out that Mr Harding could move by packing his belongings in two suitcases and moving to an apartment on a different floor.

The Full Federal Court rejected the ATO’s argument, and concluded that the relevant consideration was whether Mr Harding had abandoned his residence in Australia.

"This conclusion may help Australian expatriates living in serviced apartments or hotels on long‑term arrangements, where they can show they have abandoned their residence in Australia," law firm Cooper Grace Ward, who acted on behalf of the taxpayer, said.

The ATO also argued that a person’s subjective intention should not trump objective ‘connections’ with Australia. The ATO pointed to a list of objective connections Mr Harding continued to have with Australia.

The Full Federal Court, however, concluded that the taxpayer’s intention is relevant. In fact, in Mr Harding’s case, some of the objective connections supported the conclusion that Mr Harding was not a resident of Australia.

Risks still remain

Despite the  Full Federal Court's decision, risks still remain for Australian expatriates who maintain a family home in Australia.

Mr Harding’s case was described by the primary judge as ‘unusual’, and it is worth noting that the ATO did not assess the income years after Mr Harding and his wife were separated.

The number of days that a person is physically present in Australia (even if well under 183 days) will continue to be a risk indicator that the ATO will consider, Cooper Grace Ward warns.

Last year, the Board of Taxation called the income tax residency rules for individuals as uncertain and subjective, however, the government has refrained from taking a position on the recommendations.