Taxation Law for Expats Living Abroad

This article discusses the tax implications for expats living in foreign countries and the importance of residency status in taxation law. It explores the concept of tax residency, the different tax scenarios for expats, and recent court cases related to tax residency. The article also highlights the implications for the application of the ordinary concept test and the permanent place of abode test. Overall, it provides valuable information for expats navigating the complex tax laws.

Running head: TAXATION LAW
Taxation Law
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Introduction:
The status of residency for tax purpose is viewed as vital aspect and must be
considered if a person is preparing to shift in overseas nation for the extended time. The
taxation commissioner may ascertain whether the tax residency status of a person has altered
on the basis of specific conditions and engagements (Bankman et al., 2018). As the common
rule, anything beyond three years accompanied by no fixed day of return and realistic view of
living in foreign nation for longer time period makes it probable the residency status would
alter. Australia has a very multifaceted laws relating to tax. Expats and the migrants for
business purpose should be aware regarding exact concessions and pitfalls for those
individual’s arrangements relating to employments brings them inside and outside of
Australia’s shores.
The tax system of Australia is such that the expats should be aware of the residence
status in which the expats should be aware, namely the Australian resident for levying tax and
foreign dweller (Schmalbeck et al., 2015). Irrespective of the residence status, a person may
be needed to complete the tax return.
The essay will be understanding tax implication for the expats that are living in
foreign nation. The implication of ordinary concepts will also be studied on the expats
together the implications of what amounts to permanent place of abode and its importance for
the Australian expats moving overseas. A detailed understanding of “Harding v
Commissioner of Taxation (2018)” and “Harding v Federal Commissioner of Taxation
(2019)” will be considered as well.
Tax implications for Australians living as expats in other countries:
Most importantly, the employers and their expats must wisely evaluate their tax
residency position on the basis of all the facts and conditions. To assist in assuring that the

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tax implications of the task is understood and the correct reporting of tax is considered with
the help of payroll and personal tax returns (Brownlee, 2016). It becomes vital to not ignore
the matters associated to tax that should be acknowledged before a person is leaving Australia
following the completion of their expatriate assignment. The discussion follows that a person
may not be held as Australian resident when they actually depart from Australia.
The foreign residents should be aware that beside the Australian tax liability for the
earnings and gains earned from Australian sources, there might be also a trailing tax liability
regarding the employee share plan or the deferred bonus plans which is partially for time
engaged in Australian employment (Siebert, 2019). The expatriates should make the
arrangement for the lodgement of tax return in the year in which a person departs from
Australia. While computing tax payable in Australia for the departure year, the threshold
limit for tax-free purpose applicable to resident taxpayer may be pro-rated on the basis of
their period of residency.
When living in overseas there can be three possible tax scenarios. A person may
continue to be treated as Australian resident for tax purpose and taxes may be imposed on the
worldwide income however credits are available for the foreign taxes paid (Jones, 2018).
When living overseas as expat a person may be observed as tax resident of Australia under
the Australian law but may also be a resident in overseas country for tax purpose. provided
that there is a double taxation treaty with that nation, then the ability of imposing tax by
Australian would be limited or excluded. Lastly, a person may be the non-resident under the
Australian taxation laws and only be levied taxes in Australia on specific income and gains
from the Australian sources.
In the recent decision passed by the federal court in “Harding v Commissioner of
Taxation [2018]” FCA, 837 the court noticed that Mr Harding, a citizen of Australia that

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worked and lived in overseas for long period, however focussing on March 2009 to Feb 2015
was considered resident of Australia under the wider definition of resident under “sec 6,
ITAA 1936” (Norbury, 2019). The case introduced a wide range of issues which are mainly
considered relevant to Australian expats that are living and working in foreign for the long
time period.
The federal court in its unanimous decision permitted the appeal of “Harding v
Federal Commissioner of Taxation [2019]” FCAFC 29. The case of Harding is viewed as
vital in ascertaining tax residency decision for the Australian expatriates that work in
overseas but maintains the family or the financial ties with the Australia (Sadiq, 2019). The
case is considered very much striking since the taxpayer had been living out of Australia for
around 17 of the 20 previous years, however the ATO still argued that the taxpayer was still
held Australian resident under the rules, which sufficiently demonstrates that the tax
residency rules for the individuals that are leaving Australia is very much complex and may
lead to uncertainty. Persons that work in overseas while maintaining the connection with the
Australia should navigate the complex statutory as well as common law principles of tax
residency.
Helpfully, in turning over the verdict, the federal court stated that the term “place” in
the “permanent place of abode” invites the consideration of the town or country where a
person lives physically. If a person has the physically left Australia, it is not necessary that
the particular house or apartment in the overseas nation should be lived in. This implies that
the use of rented accommodation which during the short-term will definitively not be
subjected to Australian expatriates for the net tax purpose in Australia (Butler, 2019). The
decision clearly highlights that for the Australian expatriates, when the matters relating to tax
residency is concerned and also setting up the home in overseas, the type of property and
most importantly how the property is utilized is also an important matter.

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Implications for the application of ordinary concept test:
“Sec 6 (1), ITAA 1936” defines the context based on which the residence of an
individual comes up as the tax issue. The definition given in “sec6 (1), ITAA 1997”
considers a person as Australian resident when they are living in Australia for a very long
time and have the permanent abode in Australia. In “Harding v Commissioner of Taxation
[2018]” federal court noticed that the taxpayer was not-resident of Australia
(Judgments.fedcourt.gov.au, 2019). The continuous association of the taxpayer with Australia
was taken into account under the “resides test”. The family of Harding’s lived in Australia
during the year 2011 and resided in the same family home. Throughout the income year Mr.
Harding visited Australia on four different occasion to meet his families and lived in his
home for around 91 days throughout his visits. The combination of this factors would
generally portray a continuous relation with the Australia. This would be amounted as
determination that he was living in Australia.
Nevertheless, the law court was content that the Mr Harding had the clear intention of
not coming back to Australia after his departure in 2009. Additionally, the law court also took
into consideration the unusual situations of the case, including the extensive amount of time
that Mr Harding has spent in Middle East, his strong desire of coming back to the location
and his propensity of placing his career and life in the Middle East beyond his personal ties
(Murray et al., 2018). The court finally under the “resides test” concluded that Mr Harding
was not residing in Australia following the time of his departure.
The law court though in the first instance held that the taxpayer did not lived in
Australia. In a supportive change for taxpayers, the full court confirmed its conclusion. In
deciding the case taxation commissioner remained dependent on all the connection that Mr
Harding had with Australia such as the taxpayer was the Australian citizen and his family
lived and remained in Australia (KPMG, 2019). A holistic approach was taken by the federal

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court during the first instance in taking into account the situation of the taxpayer and
particularly considering the intention of Mr Harding of not coming back to Australia after he
leaving in 2009. Though he had the place of living in Australia the full court noticed that he
had no intention of treating his place as his home.
The full federal court further rejected the argument of commissioner that the taxpayer
resided in Australia, in respect to the independent associations that he had retained in
Australia. While some of the objective connections did supported the conclusion that he did
not resided in Australia (Pwc.com, 2019). At the end, the federal court considered that the
quality as well as the nature of the connections were either supportive to the finding that Mr
Harding was not the resident of Australia or were not sufficient to outweigh the intention of
Mr Harding of leaving indefinitely Australia.
The analysis of the court regarding the permanent home may be viewed as concerning
for several expatriates since expatriate generally make use of the fully furnished home in
several countries. The expatriates are however required to carefully consider their
arrangement for overseas accommodation arrangement in regard to their degree of
permanence from the first day.
Implications for permanent place of abode and its importance:
In the earlier decision made in “Harding v Commissioner of Taxation [2018]” the
law court in its judgement stated that the maintenance of completely furnished apartment by
Mr Harding in the overseas cannot be considered sufficient to meet the “permanent place of
abode” test (Pwc.com, 2019). As defined in the “sec 6 (1), ITAA 1936”, an Australian
resident implies that the person is actually living in Australia and simultaneously takes into
account the person that has their domicile in Australia except when it is proven that
“permanent place of abode” of a person in not in Australia.

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The question that was in front of the full federal court was that whether Mr Harding
had established the permanent place of abode out of Australia, but instead involved whether
the commissioner may have been content on the basis of the fact that was given by Mr
Harding, which stated that he had the permanent place of residence out of Australia
(Pwc.com, 2019). Despite the fact that the court during the first instance emphasised on the
specific accommodation of Mr Harding in Bahrain and whether it was treated to be
adequately permanent, the judgement of the federal court also denoted that it was very
narrow concept of what may be viewed as the “permanent place of abode”. Indeed, with the
objective of permanent place of abode test, this cannot be considered by simply referring to
as whether the person’s permanent place is located at the specific house, flat or dwelling, but
instead the word “permanent place” requires identification of a state or nation where a
person is actually living.
While looking at Harding’s accommodation in Bahrain might be viewed as
provisional or momentary, as he was in search of purchasing a large house once his family
relocates, this was completely considered consistent with the settled purpose and conclusion
that his permanent place of abode was in Bahrain (KPMG, 2019).
For the expatriates the decision of the full federal court was a winning situation for
going to overseas project (Pwc.com, 2019). The federal court arguably has restored the
balance by emphasising on whether the taxpayer has validated that they are living in the
foreign nation on the permanent basis. Whereas, this kind of accommodation in the foreign
country may be considered relevant to inquiry, yet it is necessary to take account of the
totality of facts and circumstances when ascertaining the tax residency in Australia.
Conclusion:

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The latest judgement is considered very timely because the government would
quickly consider the Board of Taxation review regarding the residency rules of Australia for
individuals and expats. The case of Harding again provides an example of difficulty in
implementing the present law on the Australian expatriates and the need for change so that
they can provide greater amount of clarity when it comes to ascertaining the Australian tax
citizenship position for expatriates.

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References:
Bankman, J., Shaviro, D. N., Stark, K. J., & Kleinbard, E. D. (2018). Federal Income
Taxation. Aspen Publishers.
Schmalbeck, R., Zelenak, L., & Lawsky, S. B. (2015). Federal Income Taxation. Wolters
Kluwer Law & Business.
Brownlee, W. E. (2016). Federal Taxation in America. Cambridge University Press.
Siebert, H. (2019). Reforming capital income taxation. Routledge.
Norbury, M. (2019). Mr Harding's residence reconsidered. Taxation in Australia, 53(9), 497.
Jones, D. (2018). Complexity of tax residency attracts review. Taxation in Australia, 53(6),
296.
Sadiq, K. (2019). Australian Taxation Law Cases 2019. Thomson Reuters.
Butler, D. (2019). Who can provide taxation advice?. Taxation in Australia, 53(7), 381.
Murray, I., Taylor, J., Walpole, M., Burton, M., & Ciro, T. (2018). Understanding Taxation
Law 2019.
Judgments.fedcourt.gov.au (2019). Harding v Commissioner of Taxation [2018] FCA 837.
(2019). Retrieved 4 September 2019, from
https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/
2018/2018fca0837
KPMG, (2019). Australia – “Permanent Place of Abode” Outside Australi. (2019). Retrieved
4 September 2019 2019, from https://home.kpmg/xx/en/home/insights/2019/03/flash-
alert-2019-039.html

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Pwc.com, P. (2019). Pwc.com. Retrieved 4 September 2019, from
https://www.pwc.com/gx/en/services/people-organisation/global-employee-mobility/
global-mobility-country-guides/assets/pwc-gm-folio-australia.pdf
Pwc.com.au. (2019). Retrieved 4 September 2019, from
https://www.pwc.com.au/tax/taxtalk/assets/alerts/australia-becoming-a-non-resident-
just-became-harder-20jun18.pdf
Pwc.com.au. (2019). Retrieved 4 September 2019, from
https://www.pwc.com.au/tax/taxtalk/assets/alerts/australia-residency-case-a-win-for-
the-taxpayer-25022019.pdf