A taxpayer has been unsuccessful before the Federal Court, in establishing that he was not a ‘resident’, for Australian income tax purposes, on a basis that centred around whether he had a ‘permanent place of abode outside of Australia’ for the purposes of the Australian ‘domicile’ arm of the definition of ‘resident’ in s6(1) of the ITAA36. The result was that he was assessed, in Australia, on his 2011 Saudi Arabian employment income.
The Commissioner raised the assessment on the basis that the Taxpayer was both a ‘resident’ according to the ordinary meaning of the word, or that he had an Australian ‘domicile’ and had failed to establish a ‘permanent place of abode’ outside Australia.
The factors that might have attracted the Commissioner, to this conclusion, were that he jointly owned a house in Australia (on the Sunshine Coast, near his parents) and his wife and three children continued to reside there, after he left to work in the Middle East (again). Also, he came back to visit his family from time to time.
The ‘back story’, however, changes the complexion of this [paras 7 – 28].
- The Taxpayer was an Australian citizen, born in 1965. He started his working life as aircraft engineer with BAE systems. He held an Australian Passport, and a British one, as his (first) wife was British.
- He left Australia at a relatively young age and was married to his first wife: Tracey, in the UK, in 1990 (aged 25).
- His employment with BAE systems took him to Saudi Arabia, where they happily live for 7 years, enjoying the ex-pat life-style. They then moved to Riyadh. During this time they had 2 of their children.
- Around the time of the 2001 attacks on the ‘Twin Towers’ in New York, there was unrest and attacks (that killed one of Mr Harding’s friends). They returned to England, for their sons’ education. And though they returned to the Middle East in 2003, they decided to relocate to Australia. They built a house on the Sunshine Coast, which was in 2004.
- At this time, Mrs Harding was pregnant with their 3rd child. And, in her affidavit, she said she intended this move to only be temporary.
- Mr Harding remained in Riyadh until 2006, but then returned to Australia, taking up employment here. He stayed about 3 years but received an offer to work back in Saudi Arabia in 2009, which he took (now in petrochemical industry training). Both Mr Harding and his wife intended that he would relocate back permanently to the Middle East, but that his wife and children would remain in Australia, for the remaining 2 years of his middle child’s secondary education, at the end of calendar 2011. The evidence was that he sold all his significant personal belongings (consistent with this intention). The Court also accepted his evidence that he didn’t intend to live in the jointly owned Australian house again, as his home. He did, however, visit them each year.
- In the six years he lived in Bahrain, Mr Harding lived in three serviced apartments, in the same building (from 2009 to 2015 – straddling the 2011 financial year at issue here). He had exclusive possession of these apartments and he treated them as his home, leaving his personal effects there.
- When he first arrived, in 2009, Mr Harding started making plans to relocate his wife and youngest son to Bahrain (and in fact had him enrolled in school). He had a two bedroom apartment and his family visited him once. But their marriage broke down and in June 2011, when he realised his family would not be coming to live with him, he moved to a one bedroom serviced apartment (and they divorced in 2014). By June 2012, however, he had formed a new relationship and moved back to a two bedroom apartment.
- In 2014, Mr Harding committed to moving jobs to Oman, and his then partner did not want to relocate, so that relationship came to an end.
- In 2015, in Oman, he met and married his second, and current, wife. His employment remained in petro-chemical industry training.
‘Pulling the lens back’ in this way gives a different picture – a picture of a man who’d spent most of his working life in the Middle East, away from the country of his birth, where he only returned for 3 years, never intending it to be permanent – and it wasn’t. The evidence was, that, by 2009, he intended to relocate permanently to the Middle East and not live in the Australian house, as his home, again – all of which was borne out by events. Further, the ‘ties’ of wife and family dissolved over the 2011 financial year that the Commissioner sought to assess. Additionally, the ‘fully furnished’ nature of the apartments was something of a ‘furphy’ as he stayed between 1 and 2 years in each of the three apartments and the terms gave him him ‘exclusive possession’. Further, by the end of the 2011 financial year, that the Commissioner assessed, he’d been working overseas for 2 years – usually long enough to be called ‘permanent’ in this context (however, its the ‘abode’ that must be ‘permanent’ and not the posting).
On the facts, the Court held (correctly, in my view) that Mr Harding was NOT resident, within the ordinary meaning of that word [para 88].
The Taxpayer (perhaps unhelpfully) conceded that he had NOT abandoned his Australian domicile, and given that he’d been represented throughout, the Court had to accept it (though, I sense, with some hesitation and reluctance).
The Court referred to one of the leading authorities on this ‘domicile’ are of the definition of ‘resident’ and the meaning of ‘permanent place of abode’: the Full Federal Court decision in Applegate  FCA 37. Here, the court said that ‘permanent’ had to qualify the ‘abode’ for the purposes of that particular year, and plainly must mean something less than ‘for the rest of his days’ as then he could not still be ‘domiciled’ in Australia.
The Federal Court held that the taxpayer did not establish a permanent place of abode overseas in the sense required under the “domicile” test, even though the taxpayer was able to demonstrate that he did not intend to return to live in Australia (and did not so return).
It seemed that the Taxpayer was the victim of living in fully furnished apartments, permitting him to move with only a few suitcases, and the Court did not find this kind of ‘abode’ sufficiently ‘permanent’ – even though he had lived in the first (of his three) apartments for 2 years and nearly the whole of the relevant year of income. Further, he selected this apartment, as big enough for his family to join him, suggesting permanence. The Commissioner, on the other hand, referred the taxpayer’s conditions of employment, which required him to be able to move.
It seems, on balance, the serviced apartment living was too close to the ‘succession of hotel rooms’ end of the spectrum (and not as permanent as a purchase or long term lease), so he failed.
As it turns out, the Taxpayer has appealed this decision (see related TT Article) – so there may be a different outcome.
(Harding v FCT  FCA 837, Federal Court, Derrington J, 8 June 2018.)
[LTN 110, 12/6/18; Tax Month – July 2018]
Comprehension questions (answers available)
- Was the taxpayer subject to Australian tax, on his Saudi Arabian income, despite not being ‘resident’ within the ordinary meaning of the word?
- Was this because he accepted he was still had an Australian ‘domicile’ and his abode in the Middle East, was not sufficiently ‘permanent’?
- Was this largely because he lived in a serviced apartment, albeit, one where he had exclusive possession and he had lived in just that one apartment, for the whole of the first two years he came back to the Middle East?
- Was one of the tell-tale signs that he could, and did, move apartments with only a few suitcases of belongings?
- Will there be an appeal, by the taxpayer?