Permanent place of abode – Being a resident for tax purposes in Australia

The High court has refused an application by the Australian Taxation Office (ATO) to appeal a decision of the Full Court of the Federal Court where they clarified how the term “permanent place of abode” should be construed.

The Full Court of the Federal Court handed down its decision in Harding v Commissioner of Taxation [2019] FCAFC 29 earlier this year.

The Full Court of the Federal Court had overturned any earlier Federal Court decision where it was found that Mr Glenn Harding an Australian citizen who lived and worked in the Middle East where he was subject to largely tax-free environment. The Federal Court had ruled that even though he rented a furnished apartment it was not enough to prove he was a resident.

The Full Court of the Federal Court disagreed with this decision and found he was a non-resident and as a result, the non-Australian income was not liable to be declared for Australian tax purposes.

By way of background Mr Glenn Harding had worked in Saudi Arabia between 1990 and 2006. He returned to Australia in 2006 and joined his wife and young children and resided in Australia until he returned to Saudi Arabia in 2009 but resided in the neighbouring country of Bahrain. He received a significant tax-free salary. His wife and children remained in Australia.

When he left for Middle East in 2009, he told the court it was his intention to live in the Middle East indefinitely. He rented a fully furnished apartment in Bahrain. He indicated that his family would join him in 2011 and then he intended to purchase a larger Bahrain property. However, in 2011 when his family was due to move to the Middle East the marriage broke down and they separated.

In the original decision in the Federal Court it was found that the fully furnished apartment was not enough to prove it was permanent.

Interestingly he did move apartments during the six-year period he resided in Bahrain, but it was always in the same apartment block.  Due to the facts the apartments were fully furnished he did not purchase any substantial domestic items.

The judge who heard the initial case focused on the fact he was living in a rented apartment rather than permanent ownership or a long-term lease. However, the Full Court of the Federal Court found it was sufficiently permanent finding that the “permanent place of abode” test should not be determined by reference to whether a person is located at a specific place and whether they rent or own the property, but rather whether they are living in an overseas country permanently. They found that Mr Glenn Harding at Harding had lived in Bahrain for a number of years and five or six in the same apartment block),  he was looking to purchase a larger property once his family arrived which indicated that it was consistent with his “permanent place of abode being in Bahrain”. As a result, he was living in Bahrain with sufficient permanence.

This decision provides clear guidance on how the ATO must consider tax residency of an Australian citizen.

At FC Lawyers we have acted for Australians who reside around the world and have expertise in these issues along with migration issues.

Contact our team of Registered Migration Agents and Immigration Lawyers to discuss your permanent place of abode, tax issues or immigration legal issues.