Importance of the Cases of Harding

Running head: IMPORTANCE OF THE CASES OF HARDING
Importance of the cases of Harding
Name of the Student
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Author Note

IMPORTANCE OF THE CASES OF HARDING1
Introduction
In any country, the main purpose of having a taxation system and authorities is to ensure
that every citizen contributes their fair share of income for the smooth functioning of the country.
It is the job of the regulating authorities to ensure the same but in a fair manner. The Australian
Taxation Office (ATO), ever since its inception, has been able to do a commendable job in
running the tax system of the country. However, there are certain areas where the rules of the
taxation office are not very clear and are frequently contested in courts over the differences in
their meanings. One such area is that of the tax charged on individuals living and working
outside of Australia as expats. There have been numerous cases contested in the court of law
over the years about the tax liability of a person having Australian citizenship but residing
abroad for job purposes for a significant period of time. Some of these cases are considered to be
extremely important and the judgements in those cases are frequently cited as means to ensure
that unfair taxes are not charged on the expats. The latest case in this particular area is that of
Harding V Commissioner of Taxation [2019] FCAFC 29. Its basis is the appeal of Mr Glenn
Harding against the judgement of the court in Harding v Commissioner of Taxation [2018] FCA
837, in which he was asked by the commissioner to pay his income tax as an Australian individual
for taxation purposes.
Overview of the case
Mr Glenn Harding, an Australian citizen continued to live in Bahrain from 2009. As his
job was in Saudi Arabia, he travelled on a daily basis from Bahrain which was also the case with
many people who used to work in Saudi Arabia. At that point of time, his family resided in
Australia and not with him. Mr Harding expected them to join him in the year 2011 after the
completion of his son’s high school education. However, things did not turn out that way and his

IMPORTANCE OF THE CASES OF HARDING2
family failed to relocate to Bahrain as expected. As his family had resided in Australia in 2011
and due to the absence of a permanent residence in Bahrain, it was held that Harding was
considered to be a resident of Australia for the purpose of taxation. According to the guidelines of
the ATO, a person is a resident for the purpose of tax without actually being an Australian citizen
and is liable to pay taxes on the income accrued all over the world. For an Australian citizen, they
have to prove it to the Tax Commissioner that they are domiciled outside Australia (Steen & Peel,
2015). Mr Harding failed to do so and hence had to pay taxes on the income accrued by him from
Saudi Arabia.
Implications for Australian Expats
The flaws in the judgement of the 2018 case were highlighted in the 2019 case by the
court. The provisions of section 6 of the Income Tax Assessment Act 1936 suggest that a person
will be considered to be an Australian citizen if they have continuously lived in or in some part of
Australia for an indefinite time. If they live in another country, their income is still taxable in
Australia if the Tax Commissioner thinks that they have a domicile or permanent place of abode
in Australia. According to relevant guidelines of section 6.5 of the Income Tax Act 1997, an
individual believed to be a resident through ordinary purposes will be held liable for tax payment
on the ordinary revenue earned by him during the year (Income Tax Assessment Act 1997, 2019).
Hence, as the tax authorities considered that Mr Harding was a resident of Australia for taxation
purposes, he had to pay the taxes on his income earned from everywhere in the world ("Work out
Your Tax Residency", 2019). However, the judgement highlighted the fact that charging tax from
Mr Harding was unfair and he was not liable to pay taxes for the year 2011. It suggested the limits
to which the ordinary concepts test could be applied. It also stressed on the prominence of what
should be included in a permanent place of abode. Hence, this judgement comes as a major relief

IMPORTANCE OF THE CASES OF HARDING3
to expats working and living outside Australia. Due to this, they are not liable to pay the high
amount of taxes that they were previously charged by the ATO. The taxes paid by them in the
foreign countries are liable to tax only under the tax guidelines of that particular country. Their
tax liability in Australia is limited to the amount that they directly earned or accrued through the
sources in Australia. The nature of this judgement is extremely beneficial to all the Australian
expats due to the reduced tax liability (Bembrick, 2018).
Implications for the Ordinary Concepts Test
As stated above, the ITAA 1936 considers a person to be a resident of Australia for the
purpose of taxation if they are considered as having been domiciled in Australia (Pinto & Sadiq,
2016). However, other than the opinion of the Tax Commissioner, there are no universally
accepted measures of determining whether a person has been domiciled out of Australia. This
lack of clarity in the ordinary concepts test has become the main flaw in the guidelines of the tax
authorities. The key words that are important to be understood in this case are the words ‘resides’
and ‘permanent place of abode’. The word ‘resides’ has no fixed meaning in Australia’s Tax Law.
However, one meaning that is widely accepted and held in most of the case laws related to
residency has been suggested in Commissioner of Taxation v Miller (1946) 73 CLR 93 by
honourable judge Latham CJ. The judge suggested that a person should be considered to have
resided in a particular place if he has lived there permanently or for a reasonable amount of time.
He further suggested that the word ‘resides’ should mostly be considered as it is used in the
ordinary course. His meaning was given by citing Levene v Inland Revenue of Commissioners
(1928) AC 217. In a situation where that person leaves his residence on a temporary basis like
holidays, business trips or due to emergency situations, it cannot be suggested that he has not
resided in that particular place. As the situation of every person is different from one another