Implications of Harding v Commissioner of Taxation: A Legal Analysis

This essay analyzes the implications of the Harding v Commissioner of Taxation cases, focusing on their impact on Australian taxation law. The analysis begins with an introduction to the Australian Taxation Office's role and the distinctions in tax provisions for different residency statuses, particularly the complexities surrounding Australian residency for tax purposes. The essay delves into the tax implications for Australian expats, referencing section 6(1) of the Income Tax Assessment Act 1936 and the significance of the 2019 ruling in providing relief to expats. It then explores the implications for the application of the Ordinary Concepts Test and the significance of domicile and intention in determining tax liability, highlighting the limitations of the test. Finally, the essay examines the implications on the concept of a permanent place of abode and the factors considered in determining residency, citing relevant case laws like Applegate v Commissioner of Taxation. The analysis concludes by emphasizing the significance of the 2019 Harding case for Australian expats and the extent to which the ordinary concepts test can be applied.

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

1IMPLICATIONS OF HARDING V COMMISSIONER OF TAXATION
Introduction
In Australia, the responsibility of the charging and collection of taxes and the formulation
of appropriate tax provisions lies with the Australian Taxation Office. While people residing in
Australia are liable to pay taxes on the income earned by them, the taxation provisions related to
other form of residents are different from that of the ordinary residents. These include an
Australian resident for tax purposes, resident on a temporary basis and a foreign resident. While
the residency status of a foreign resident and a temporary resident can be easily determined, there
has been no common consensus on what constitutes an Australian resident for tax purposes. Over
the years, there have been many cases and legal provisions to ensure that there is a clarity about
the residential status of an individual exclusively for taxation purposes. Some of the judgements
provided by the judges in certain cases have been considered to be landmark judgements. One
such case where the final decision of the court was considered to be of great significance was
Harding v Federal Commissioner of Taxation [2019] FCAFC 29. This case was based on the
appeal filed by Mr Glenn Harding after he was deemed an Australian resident for taxation
purposes by the Commissioner of Taxation in Harding v Commissioner of Taxation [2018] FCA
837. Both these cases have attained major significance amongst the Australian expats due to the
nature of the judgements that benefit them (Bembrick, 2018).
Tax Implications for Australian expats
According to the provisions of section 6(1) of the Income Tax Assessment Act 1936, a
person is deemed to be residing in Australia even if they reside outside Australia on a permanent
basis but has a domicile in Australia (Pinto & Sadiq, 2016). The person will not be considered a
resident only if he is able to prove to the Commissioner that he has a domicile outside Australia.
The honourable judge Derrington observed the lack of precision in the common laws used in

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testing the residency of an individual living and working outside Australia but still retaining a
home or family in Australia. The major aspect of contention in these cases was determining the
intention of the individual involved in the case. The same was highlighted in the case LK v
Director-General, Department of Community Services (2009) 237 CLR 582, 599. Due to the lack
of clarity in this aspect, many citizens had to pay the tax charged by the ATO on the entire
income earned by them. The fact that the source of income was not Australia is deemed
irrelevant by the authorities once a person is considered to be a resident for taxable purposes. If a
person is found to be a resident for tax related purposes, then they should declare all the income
received by them both internationally and in Australia in their Australian tax returns ("Work out
Your Tax Residency", 2019). This is applicable even if they have paid taxes on the international
income overseas. Due to the nature of this law, many expats living outside Australia had to pay a
huge amount of taxes. The initial judgement by the court in the 2018 case made it more difficult
for the Australian expats to break their Australian tax residency. They had to continue paying a
large amount of taxes even if they intended to stay out of Australia indefinitely for an extended
period of time. However, the 2019 decision by the honourable judges Logan, Davies and
Steward comes as a huge relief to them and can be considered to be a win for the Australians
living as expats. By taking a broader view of the term residence and the permanence of
residence, the court has been able to find a better balance regarding what constitutes a resident
for taxation purposes. Another major implication of this judgement of the court is the decision of
the Australian government to review the Board of Taxation’s Australian residency rules of
individuals living as expats (Australia: Residency case a win for the taxpayer, 2019). They have
acknowledged the lack of clarity in the current set of rules to be correctly able to determine the
tax residency of individuals.

3IMPLICATIONS OF HARDING V COMMISSIONER OF TAXATION
Implications for the application of Ordinary Concepts Test
Section 6.5 of the Income Tax Assessment Act 1997 suggests that a person’s assessable
income consists of income as per the ordinary concepts, also known as the ordinary income.
However, some of the provisions related to section 10-5 make the tax treatment related to
ordinary income more complex (Income Tax Assessment Act 1997, 2019). The point of
contention again becomes the fact that whether the person was an Australian resident or not. The
ordinary concepts test is a basic test used to determine whether a particular individual is an
Australian resident or not. It generally determines the residency status through the common
meaning of the word. In the Australian law, the ordinary meaning of the term ‘resides’ has not
been defined. However, in the case of Commissioner of Taxation v Miller (1946) 73 CLR 93,
justice Latham CJ identified the meaning of the word ‘resides’, which is now widely accepted
and considered as an accurate meaning in most of the cases. As observed in the case of Levene v
Inland Revenue of Commissioners (1928) AC 217, a person is said to have resided in the place
that he lived in either on a permanent basis or for a considerable amount of time. In case he
leaves the country of his residence for temporary business or pleasure, it does not imply that he is
not a citizen of the country of his residence anymore. In case of most problems, this relatively
straightforward definition of the word resides is applied to determine whether an individual is a
resident of a particular country or not. This is the ordinary way of determining the residency
status of an individual ("Work out Your Tax Residency", 2019). However, as mentioned by the
honourable judge in the case of Harding, it is not always possible to apply this meaning of
resides to determine the taxation liability of an individual. In situations where the ordinary
meaning of resides is not sufficient to determine the residence, the concept of domicile and

4IMPLICATIONS OF HARDING V COMMISSIONER OF TAXATION
intention of the person are to be considered. The judgement in the 2019 case of Harding is a
guideline for the tax authorities to stop over relying on the ordinary concepts test. While its
usefulness is not questioned by any of the judges, it has been clearly stated by everyone involved
that there is a limit to which the ordinary concepts test can be applied. Mere application of the
test under all circumstances is not acceptable anymore and there is a need to consider the
situation of the person involved. This also changes the process of determining the residential
status of a person. As mentioned in the paragraph 58 of the Harding case of 2019, a continued
absence of a person from Australia and their intention to not return to Australia are sufficient to
terminate the residency of a person to the extent that they are determined by the ‘ordinary
concepts of residency’ ("Harding v Commissioner of Taxation [2019] FCAFC 29", 2019).
Implications on the permanent place of abode
As stated by section 6(1) of ITAA 1936, a person will be considered to have been a
resident of Australia if he has a permanent place of abode or domicile in Australia. In case he
lives in Australia for more than half a year continuously, then he should be able to convince the
Commissioner of Taxation that he has a place of domicile outside Australia (Steen & Peel,
2015). The definition of what constitutes a permanent place of abode and in which country is a
person domiciled has been difficult to determine over the years. According to section 10 of the
Domicile Act 1982, the intention of a person behind acquiring domicile in a country is to make
that particular country his or her home for an indefinite period ("Domicile Act 1982", 2019). The
honourable judge Selby J observed in Terrassin v Terrassin (1968) 14 FLR 151 that a person
changing his country of domicile needed to have a clear and cogent evidence that the change in
residence had indeed taken place. The seriousness of the act of changing one’s domicile and the
need of concrete evidence was also highlighted in the decision of Lord Curriehill in Donaldson v

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M’Clure (1857) 20 D. 307. There has also been certain confusion between the terms reside and
permanent place of abode. However, an in-depth examination of both the terms suggests that
there is no big difference between both of them. The judge also emphasised the need to have a
broader meaning for the term resides. Citing his judgement in Dempsey and FCT [2014] AATA
335; 2014 ATC 10-363, he suggested that there was a checklist of factors that needed to be
considered for determining the residence of a person. These factors were considered to be
relevant in the earlier cases of similar nature. However, he also stated that no matter how
relevant these factors were, they should not be used as a substitute to the relevant law and
regulations. The other important findings from this judgement were that a person who was
returning to Australia on a temporary basis as a mere visitor could not be considered a resident of
Australia. Even if he did not make any special efforts to give up things that are an indication of
his residential status like citizenship, gun license and others, he could not be considered to be a
resident of Australia. The broader meaning indicates that even if the person lives in multiple
residences over a period of time in a particular country, he could not be considered to be a citizen
of Australia. This may due to the circumstances prevalent in the place he exists in and hence
should be taken into account while considering the situation of the person. The rationale behind
this judgement was that a person who is domiciled in Australia but has left their permanent
residence of Australia behind them should not be held liable for federal taxation purposes
(Kenny, Blissenden & Villios, 2015). The judgement also states that the reason for using the
word ‘permanent place of abode’ by the Australian Parliament was to consider a town, city or
country outside Australia and not just a specific place in which a particular person was living
over a period of time. The case which is most relevant to the rationale of the judges in their
judgement in the Harding case of 2019 is the case of Applegate v Commissioner of Taxation

6IMPLICATIONS OF HARDING V COMMISSIONER OF TAXATION
[1978] 1 NSWLR 126 (“Applegate [1978]”). In this case, a husband and wife left Australia in
1971 and stayed in Vila in different places. However, they had no intention of returning to
Australia until Mr Appleton returned on account of his poor health. Hence, it was suggested that
the person could not be considered to be a citizen of Australia even though he failed to establish
a permanent place of residence outside Australia.
Conclusion
From the analysis of all the relevant guidelines and case laws, it is quite evident that the
final judgement in the 2019 case of Harding is a major relief for Australians living outside
Australia as expats. The tax liability of these people in the previous years was much higher than
what they would be required to pay from now on. This judgement also states the extent to which
the ordinary concepts test can be applied. In case if a person continues to live outside Australia
for an extended period of time and has clearly stated that he has no intention of returning to
Australia, then the relevance of the ordinary concept ends there. This case also suggests that
there is a need to adopt a broader meaning the word ‘permanent place of abode’ of a person. In
situations where a person has continued to reside outside Australia, then the case should not
consider whether the person has established a permanent place of residence outside Australia or
not. Even if he does not give up his Australian citizenship or take other steps, he cannot be
considered an Australian citizen for taxation purposes.

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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/.
Bembrick, P. (2018). Taxing times for Australian expats overseas. Taxation in Australia, 53(5),
238.
Domicile Act 1982. (2019). Retrieved 26 August 2019, from
https://www.legislation.gov.au/Details/C2008C00386
Harding v Commissioner of Taxation [2019] FCAFC 29. (2019). Retrieved 26 August 2019,
from https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/full/
2019/2019fcafc0029
Kenny, P., Blissenden, M., & Villios, S. (2015). Residency and Australians working overseas:
can be an expensive lesson in tax Law.
Office of Legislative Drafting and Publishing, Attorney-General’s Department. (2019). Income
Tax Assessment Act 1997 [Ebook]. Canberra. Retrieved from
http://file:///C:/Users/LAPTOP_MP0290/Downloads/C2006C00472VOL01%20 (1).pdf
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.
Steen, A., & Peel, V. (2015). Economic and social consequences of changing taxation
arrangements to working holiday makers. J. Austl. Tax'n, 17, 225.

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