Taxation Law: Implications of Harding v Commissioner of Taxation

This essay provides an in-depth analysis of the Harding v Commissioner of Taxation [2018] FCA 837 and Harding v Federal Commissioner of Taxation [2019] FCAFC 29 cases. It explores the complexities of Australian tax law, particularly concerning the taxation of individuals working outside Australia as expats. The essay examines the 'ordinary concepts test' and its limitations, as well as the concept of 'permanent place of abode'. The analysis highlights the implications of these judgements, including the impact on tax residency determination and the reduction of potential tax liabilities for expats. The essay also delves into the factors considered by the courts in determining tax residency, such as the intention to return to Australia and the establishment of a permanent place of abode outside the country. Furthermore, the discussion includes the implications of the judgements on the powers of the tax authorities and the interpretation of relevant legislation, such as Section 6 of the Income Tax Assessment Act (ITAA) 1936 and the Domicile Act 1982.

Running head: IMPORTANCE OF HARDING V COMMISSIONER OF TAXATION
Importance of Harding v Commissioner of Taxation
Name of the Student
Name of the University
Author Note

1IMPORTANCE OF HARDING V COMMISSIONER OF TAXATION
Tax system in Australia
Over the years, it has been found that awareness and understanding of the taxation system
is essential to determine whether it is fair or not. Even though it is always ideal to have a tax
system that is easily understood and accessible to all, there exist scenarios where this is not
always possible. In Australia, one such controversial aspect where a debate about the application
of the law arises from time to time is the tax related to Australians working outside the country
as expats. The Australian Taxation Office (ATO) suggests that any person who is a resident of
Australia and earns his income through Australia has to pay his taxes in Australia. The test used
to determine this aspect is known as the ‘ordinary concepts test.’ The ordinary concepts test
further suggests that if a person is not residing in Australia, then he should prove it to the
Commissioner of Taxation that he has a place of domicile or a permanent place of abode outside
Australia("Residency - the resides test", 2019). If he is not able to do so, then he has to pay taxes
on all the income earned by him. Whether the income was accrued in Australia or not is
irrelevant. This rule has been considered to be unfair on the Australians living as expats in other
countries.
A landmark judgement for the expats
The difficulties faced by Australian expats with regard to their income taxes in foreign
countries has been well documented over the years (Bembrick, 2018). One of the most recent
reliefs that the expats have received from the Australian Taxation system is the judgement in the
case of Harding v Federal Commissioner of Taxation [2019] FCAFC 29. In this case, an
Australian citizen called Mr Glenn Harding had departed Australia in 2009. He lived in Bahrain
and travelled to his permanent place of work in Saudi Arabia on a daily basis. He expected his
wife and son to join him in Bahrain by the end of 2011. Mr Harding made all the necessary

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arrangements required to move his family from Australia to Bahrain. However, his wife and
family did not move to Bahrain in the end. The Tax Commissioner suggested that Mr Harding
was a resident of Australia for taxation purposes in 2011. Section 6 of the Income Tax
Assessment Act (ITAA), 1936 suggests that a person who maintains a domicile in Australia even
if he continues to live abroad on a continuous basis will be considered to be a resident of
Australia for taxation purposes (Pinto & Sadiq, 2016). As observed by the court in the 2018 case
of Harding, determining whether a person maintained a permanent domicile in Australia or not
was largely dependent on whether he had the intention to return to Australia or not ("Harding v
Commissioner of Taxation [2018] FCA 837", 2019). The existing rules guiding this principle
were not deemed to be accurate enough to determine the intention of the person. Hence, due to
this particular concept, expats who could not properly convince the Tax Commissioner of their
intention to not return to Australia had to pay taxes on all the income earned by them in a
particular financial year. In the case of Mr Harding, this included the income earned by him
through his job in Saudi Arabia. However, after the appeal, the court suggested in the 2019 case
that a person who continues to live outside Australia for more than half a year and is likely to stay
out of the country for taxable purposes is not liable to pay taxes on the income earned by him in
the foreign country. He could not be held as liable for paying taxes as an Australian resident
("Work out Your Tax Residency", 2019). Hence, the court decided that a person who could prove
the fact that he does not maintain a domicile in Australia is not liable to pay taxes on the amount
earned by him in a given financial year in Australia. Hence, before the judgement in the Harding
case, Australians living as foreign expats had to pay more taxes on the income earned by them.
This was because they had to pay both the taxes charged the country of their residence and by
Australia. However, this tax liability will reduce due to the judgement in the 2019 Harding case as

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they will pay taxes charged by ATO only on the income accrued in Australia and not in the other
foreign countries.
Limited Application of the Ordinary Concepts Test
The ordinary concepts test is a very basic test that determines the taxability of a person in
a given financial year by using basic concepts like whether he has resided in Australia in a
particular year or not. If the person has left his properties and belongings behind in Australia and
is working and living in an outside country, then his residence of taxation depends on what the
Tax Commissioner about his situation. This particular aspect has led many of the expats to
unfairly pay taxes on the income earned by them in various parts of the world. In the case of
Commissioner of Taxation v Miller (1946) 73 CLR 93, the court stated that the meaning of the
word ‘resides’ should be considered in its ordinary course of meaning. This meant that a person
is considered to have resided in a particular place if he has dwelled in that particular place for a
considerable amount of time or has settled there as his usual place of abode ("BarNet Jade - Find
recent Australian legal decisions, judgments, case summaries for legal professionals (Judgments
and Decisions Enhanced)", 2019). In the case of Mr Harding, it was suggested that as he had
lived in Bahrain for a considerable amount of time, i.e. more than half a year, he had to be
considered to have resided in Bahrain for the year 2011. Section 10 of the Domicile Act 1982
suggests that if a person wants to make a particular country his home, then he intends to live in
that country for an indefinite period ("Domicile Act 1982", 2019). As stated by the honourable
judge Franki J in the case of Applegate v Commissioner of Taxation [1978] 1 NSWLR 126, even
if a person has to return to Australia due to some unforeseen circumstances, it cannot be
suggested that he was a resident of Australia for tax purposes in the years in which he lived in

4IMPORTANCE OF HARDING V COMMISSIONER OF TAXATION
the other country. Hence, the judgement in Mr Harding’s case clearly states the limit to which
the ‘ordinary concepts test’ can be used to determine the residential status of a person.
Implications for the Ordinary Concepts Test
In the concluding paragraphs of the 2019 Harding case, the honourable judge clearly
mentions that if a person has stayed out of Australia for an indefinite period and has made it clear
that he does not intend to reside in Australia, then he cannot be considered to be a resident of
Australia anymore. It can be suggested that the 2019 judgement has limited the powers of the
ordinary concepts test and its unnecessary exploitation by the Tax authorities to collect taxes
from a person who was otherwise not liable to pay the same. Due to the decision of the 2019
case, the ordinary concepts test is not expected to be used in every situation to help reach a
judgement. It will be taken up only if it is possible to directly determine the residential status of a
person. In case of other situations, a person’s residence will be determined on the basis the facts
of his case and situations faced by him. If a person lives outside Australia indefinitely and has
clearly suggested that he doesn’t want to return to Australia, then he is not a resident of Australia
for tax purposes.
The complexities in a broader ‘permanent place of abode’
As mentioned above, section 6 of ITAA 1936 suggests that a person’s domicile is in
Australia unless they have a permanent place of abode outside Australia. Over the years, what
constitutes a permanent place of abode has been a point of contention in most of the cases.
Various technical details have been raised by the Tax Authorities in their arguments to suggest
that a person has not lived in a country outside Australia. However, one aspect where all the
parties are in agreement with each other is that they consider the change in the permanent place

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of abode to be a serious matter. Hence, a person claiming that he will be changing his domicile
also needs to prove that he has concrete and solid evidence to suggest the same. This was also
stated by Justice Selby in Terrassin v Terrassin (1968) 14 FLR 151 on the basis of the judgement
given by Lord Curriehill in the case of Donaldson v M’Clure (1857) 20 D. 307. Permanent place
of abode is one of the aspects that will be useful in strengthening his claim. However, there is no
specific understanding about what constitutes a permanent place of abode. In most of the cases
where the expats were considered to be residents by the Tax Commissioner, the failure of the
taxpayer to establish a permanent residence in that particular country was cited as a reason for
not accepting his residence outside Australia. The honourable judge Logan J cited the case of
Dempsey and FCT [2014] AATA 335; 2014 ATC 10-363 to state that the tax authorities should
maintain a checklist of factors to be used in determining the taxability of a person. However,
these factors should be considered within the scope of the law and not override it in any
circumstances ("Legal Database", 2019). In Dempsey, the judge suggested that the word
permanent place of abode should not have a narrow meaning. The rationale behind this
suggestion is that place of abode is not an artistic term and cannot be defined by a clearly
identified set of boundaries. Hence, the judge suggested that while determining whether the
permanent place outside Australia or not, the judgement should be arrived on the basis of the
facts of his case and the situations faced by him ("Work out Your Tax Residency", 2019). There
is no fixed meaning for the word that can be applied in all circumstances to determine a person’s
situation. Another aspect that was clarified by the judgement was regarding to a person moving
continuously in a particular country. If a person has lived in multiple places in a particular
country during his stay, again it could not be suggested that he does not have a permanent place
of abode in that country. The rationale of providing a broader meaning to the permanent place of

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abode is to be applied here (Kenny, Blissenden & Villios, 2015). As in the case of Mr Harding,
even if the person has maintained only temporary residences in a particular country, it cannot be
suggested that it was because of his intention to return to Australia. Again, the reasons for not
having a permanent place of residence should be taken into consideration before concluding right
away that the person did not have a permanent place of abode outside Australia. Another
important observation made by the court was that the meaning of the word ‘place of abode’
should include a city, town or the country that a person is residing in and not just a particular
address that can be used to trace the person (Pinto & Sadiq, 2016).
Implications for the permanent place of abode
The judgement in the 2019 case of Harding suggests a change in the unfair means used
by the tax authorities to determine the tax residence of a particular person. The judge suggested
that ‘permanent place of abode’ is not limited to a particular address through which a person can
be identified. The broader meaning of ‘permanent place of abode’ includes the village, city and
state of the country he resides in (Pwc, 2019). Like in Harding, if he does not have a permanent
home in Bahrain, it does not mean that he does not have a permanent place of abode outside
Australia. Hence, he need not pay tax in Australia even if he only has temporary residences in
other countries.
Summary
From the above discussion, it is evident that determining the case of an Australian
resident for taxation purposes has been a controversial aspect over the years. However, the
judgement in the case of Harding has been considered to be a landmark one. This identifies the
problems associated with the current taxation system in Australia and reduces the burden on

7IMPORTANCE OF HARDING V COMMISSIONER OF TAXATION
Australians living in other countries as expats. It also places a restriction on the usage of the
ordinary concepts test and clearly directs the tax authorities to consider each case according to its
face value and facts. By giving a broader meaning to the permanent place of abode, it has
provided more flexibility to people living in other countries as expats. They can move more
freely in those particular countries and change residences at their will than worrying about the
taxes that would be charged on them in Australia.

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References
"Work Out Your Tax Residency". (2019). Ato.Gov.Au.
https://www.ato.gov.au/Individuals/international-tax-for-individuals/work-out-your-tax-
residency/.
BarNet Jade - Find recent Australian legal decisions, judgments, case summaries for legal
professionals (Judgments and Decisions Enhanced). (2019). Retrieved 3 September 2019, from
https://jade.io/j/?a=outline&id=64424
Bembrick, P. (2018). Taxing times for Australian expats overseas. Taxation in Australia, 53(5),
238.
Domicile Act 1982. (2019). Retrieved 26 August 2019, from
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Harding v Commissioner of Taxation [2018] FCA 837. (2019). Retrieved 3 September 2019,
from https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/
2018/2018fca0837
Kenny, P., Blissenden, M., & Villios, S. (2015). Residency and Australians working overseas:
can be an expensive lesson in tax Law.
Pinto, D., & Sadiq, K. (2016). From Switzerland to New Zealand: Around the world in 13
cases. Australian Tax Review, 45(2), 133-144.
PWC. (2019). Australia: Residency case a win for the taxpayer [Ebook]. Australia.
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detail/residency/residency---the-resides-test/

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Steen, A., & Peel, V. (2015). Economic and social consequences of changing taxation
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2013%2F4862%2F00001%22

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