Taxation Law: Residency Test and Permanent Place of Abode

This article discusses the residency test and permanent place of abode in taxation law. It explores the case of Harding v Commissioner of Taxation (2018) and provides insights on the practical impacts.

Running head: TAXATION LAW
Taxation Law
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Table of Contents
Part 1:..................................................................................................................................... 2
A summary of key legal issues:...........................................................................................2
Summary of relevant law:...................................................................................................2
The permanent place of abode test:...................................................................................2
Application of law to the given facts in case:.......................................................................3
Opinion on case’s practical impacts:...................................................................................3
Part 2:..................................................................................................................................... 4
Issues:................................................................................................................................ 4
Laws:.................................................................................................................................. 4
Application:......................................................................................................................... 4
Conclusion:......................................................................................................................... 5
References:............................................................................................................................ 6

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Part 1:
A summary of key legal issues:
The issue raised in the question was whether Mr Harding was considered as non-
resident for the year 2011. This includes whether during that year Mr Harding ceases to be
residing in Australia and whether he had established a permanent place of residence out of
Australia. In “Harding v Commissioner of Taxation (2018)”, the court of law held that a
citizen of Australia that has been living out of Australia for some years and has established
the home overseas, continued to remain an Australian resident for taxation purpose for the
reason that his fully furnished home that was maintained overseas was not sufficiently
permanent1.
Summary of relevant law:
The resides test:
Whether or an individual is living in Australia is considered as the first test for the
purpose of residency. An individual would be treated as resident of Australia for taxation
purpose if an individual is for real living in Australia, irrespective of his nationality, citizenship
or their place of perpetual home. The case laws offer the factors that need to be considered
as the indicative of ascertaining whether an individual is residing in Australia. The court in
“Applegate v FCT (1979)” held that permanent does not signifies forever and the
objectively evaluated every year. This includes the physical presence, duration of physical
presence, frequency and regularity of movements and their purpose of coming to Australia
or for trip to abroad2.
The permanent place of abode test:
An individual’s intention of staying permanently instead of staying temporary or
transitory is considered vital but it is not considered as the only factor to be taken into
account. These factors comprise of the intended as well as the actual length of overseas
stay. It also includes whether any fixed home has been established out of Australia and the
durability of an individual’s continuous connection with the place within Australia. Similarly, in
“Boer v FCT [2012]” and “Sully v FCT [2012]”, the taxpayers were considered as the
1 "INCOME TAX ASSESSMENT ACT 1936", Austlii.Edu.Au (Webpage, 2019)
<http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/>
2 "INCOME TAX ASSESSMENT ACT 1997", Austlii.Edu.Au (Webpage, 2019)
<http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/>

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Australian resident all through their stay abroad because they did not establish a permanent
place of residence out of Australia3.
Application of law to the given facts in case:
Ordinary concepts test:
As per Justice Derrington Mr Harding did not lived in Australia based on the ordinary
concepts tests during the applicable income year. Although Justice Derrington, settled with
commissioner that several factors reflected that Mr Harding was an Australian Citizen under
this test. This is because he returns to Australia to visit his family. Mr Harding financial affairs
continued to substantially locate in Australia, together with his continues ownership of family
home4. He existed on passenger cards which stated that he was the Australian resident
departing temporarily. Justice Derrington with the evidence established that Mr Harding’s
actual intent was to permanently leave Australia and resume living and working in the Middle
East.
In the appeal by the taxpayer Justice Logan held that there is an overlap among the
ordinary concepts and domicile test. The appeal followed the decision where Justice Logan
held that Mr Harding had the fixed place of dwelling outside Australia. Therefore, Mr Harding
was not held as the Australian resident under ordinary concepts test.
Domicile Test:
Justice Derrington also found that Mr Harding was the Australian resident under the
definition of “resident” stated in “section 6 (1), ITAA 1936”. Mr Harding argued that his
intention was not live indefinitely in any specific Middle East nation and he might return
Australia. Special consideration was paid by Justice Darrington regarding Mr Harding’s
living. As per the judge, Mr Harding’s accommodation was temporary in nature and did not
had sufficient accessories that reflected a permanent adobe. The court held that Mr Harding
did not satisfied the “permanent place of abode” limb of the “Domicile Test”.
Following the appeal by taxpayer Justice Logan referred to subpara (i) of the section
6 and stated that Mr Harding had the domicile in Australia for 2011. Justice Logan agreed
with the decision of primary judge to determine whether the fixed place of abode is out of
Australia. By applying the principles of Justice Logan, it was held that Mr Harding had the
permanent place of residence out of Australia in Bahrain, therefore he was non-resident of
Australia.
3 Woellner, Robin H., et al. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University
Press, 2016.
4 Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)

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Opinion on case’s practical impacts:
The analysis of the court regarding the maintenance of permanent home may be a
matter of concern for several expatriates. Overall, the law acknowledge that it is probable
that a fully furnished home to be treated as permanent place of residence. But in this case,
the court noticed that impermanent intentional and original use of accommodation was
serious. Expatriates must carefully take into account their overseas accommodation
arrangements in respect of the degree of permanence from the first day5. Other aspects
associated to accommodation together with the arrangements of mail, acquiring of furniture
and utility arrangements is also critical. The decision reflects that tax residency of individuals
requires changes in Australia. This reflects the vagueness, overlying and broad multi-tiered
tests.
Part 2:
Issues:
Whether the taxpayer will be treated as Australian resident under the extended
definition of “section 6 (1), ITAA 1936”.
Laws:
Ordinary test:
The reside test signifies to dwell permanently or for the considerable time period.
This is reliant on the circumstances of case such as the taxpayer intention of presence6.
Domicile Test:
A person is held as the Australian dweller if their domicile is in Australia except when
the tax officials are content that an individual’s permanent residence is out of Australia. The
court in “Applegate v FCT (1979)” stated that permanent does not signifies everlasting and
the same is examined every year. Similarly, in “Harding v FCT (2018)” held that an
Australian citizen living out of Australia for few years and has established a home out of
Australia that are not permanent will be held as Australian resident7.
183 days’ test:
5 Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian Taxation Law (CCH
Australia, 2013)
6 Sadiq, Kerrie et al, Principles Of Taxation Law 2019
7 Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)

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Under this test if a person has been physically present in Australia for greater than
six months will be held as Australian occupant except when it is understood by
commissioner that the usual residence of taxpayer is out of Australia.
Application:
Misha did not reside in Australia based on the ordinary concepts test. Neither Nida
was physically present for more than six months of the relevant year under the 183 days
test. Under the domicile test Misha has maintained her domicile in Australia when she
returned following her five year overseas stay. Citing “Applegate v FCT (1979)” Misha did
not dwell permanently or for considerable period of time as she moved traveling around
Europe. Similarly, citing “Harding v FCT (2018)” Misha living arrangement in foreign was
temporary in nature and lacked enduring quality8.
Conclusion:
Misha failed to pass the permanent place of residence limb of Domicile Test and she
is an Australian resident under the extended definition of “section 6 (1), ITAA 1997”.
8 Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)

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References:
"INCOME TAX ASSESSMENT ACT 1936", Austlii.Edu.Au (Webpage, 2019)
<http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/>
"INCOME TAX ASSESSMENT ACT 1997", Austlii.Edu.Au (Webpage, 2019)
<http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/>
Kenny, Paul, Australian Tax 2013 (LexisNexis Butterworths, 2013)
Krever, Richard E, Australian Taxation Law Cases 2013 (Thomson Reuters, 2013)
Morgan, Annette, Colleen Mortimer and Dale Pinto, A Practical Introduction To Australian
Taxation Law (CCH Australia, 2013)
Sadiq, Kerrie et al, Principles Of Taxation Law 2019
Woellner, R. H, Australian Taxation Law Select 2013 (CCH Australia, 2013)
Woellner, Robin H., et al. Australian Taxation Law Select: Legislation and Commentary
2016. Oxford University Press, 2016.