Taxation of Australian Expats: Implications of Harding v Commissioner of Taxation | Desklib

Running head: IMPLICATIONS OF HARDING V COMMISSIONER OF TAXATION
Implications of Harding v Commissioner of Taxation
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Overview of the cases
The tax system in Australia has historically been unfair towards people living and
working in foreign countries as expats. The same has been evident in the cases that have been
contested over the years in the court of law. A thorough analysis of the latest case in this regard
known as Harding v Federal Commissioner of Taxation [2019] FCAFC 29 further provides
evidence about the lack of clarity in the laws related to the taxation of individuals living as
expats in other countries. The tax liability of these individuals is mostly dependent on their
ability to convince the Commissioner of Taxation about having a domicile outside Australia
(Bembrick, 2018). In Harding v Commissioner of Taxation [2018] FCA 837, the taxpayer called
Mr Harding was asked to pay taxes as an Australian resident for taxation purposes as the Tax
Commissioner was not satisfied that he had a domicile outside Australia for the year 2011. The
rationale provided by the Tax Commissioner in the 2018 case was that as Mr Harding did not give
up his Australian citizenship and did not have a permanent residence outside Australia, he was a
resident of Australia for tax purposes.
Reduction in Tax Liability for the expats
The section 6 of the Income Tax Assessment Act 1936 suggests that a person will be a
considered to be liable to pay taxes in Australia if he has resided and worked there for an
indefinite period. For an Australian citizen residing and working abroad, he should be able to
convince the Tax Commissioner that he is domiciled out of the country for an indefinite period
(Pinto & Sadiq, 2016). However, the rules that are in place to determine whether a person has a
domicile outside Australia are not clear. The court cites the case of LK v Director-General,
Department of Community Services (2009) 237 CLR 582, 599 to highlight the inconsistencies
and lack of clearness in the laws. Due to the ambiguity in these regulations, the foreign expats

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are treated as Australian residents for taxation purposes in some of the cases ("Work out Your
Tax Residency", 2019). According to section 6.5 of the Income Tax Assessment Act 1997, a
person who is held as a resident for taxation purposes is liable to pay taxes on the ordinary
income accrued by him in a given year. This is the case even if the income is not directly accrued
from the sources in Australia.
Implications for expats
Due to the nature of the present guidelines combined with the judgement in 2018 case of
Harding, it became extremely difficult for the expats to break their Australian tax residency.
However, the judgement in the 2019 case of Harding comes as a key liberation to these
individuals. The respectable judges Logan, Davies and Stewart in their judgement in this case
noted that the foreign expats had to be given a broader set of rules and more freedom to prove
that they do not have a domicile in Australia. This reduces the tax burden levied on them and
they only have to pay taxes on the income accrued or earned through Australia. The Board of
Taxation is also considering changing its rules regarding the taxation of the expats as the current
set of rules are not considered to be sufficiently appropriate for taxing them (Australia:
Residency case a win for the taxpayer, 2019).
Ordinary Concepts Test
The ordinary concepts test, also known as the ‘resides test’ is a way of determining the
tax residence of a person using the ordinary concepts suggested in section 6.5 of ITAA 1997.
Using this concept, if the tax commissioner is not convinced that a person is domiciled outside
Australia, then he has to pay the taxes in Australia (Income Tax Assessment Act 1997, 2019).
This test has been criticised for being too simplistic in nature in the recent times. Its application