Changes to clarify the residency tests for individuals are expected to be released in September 2022. This will be in the form of a Draft Ruling by the ATO that will provide preliminary guidance and clarification of the law to enable individuals to self-assess their residency status. It was initially flagged for release in February 2022 and seeks to incorporate the Full Federal Court’s decision in Harding v FCT [2019] FCAFC 29.
In that case, a taxpayer who was a dual citizen (Australian and British), left Australia to work in Saudi Arabia in June 2009, intending to do so indefinitely if not permanently. His wife and children remained in Australia, but he expected them to join him towards the end of 2011. However, the taxpayer and his wife separated in October 2011. He lived in an apartment building in Bahrain, commuting daily to Saudi Arabia.
From June 2009 to June 2011 the taxpayer lived in a 2-bedroom apartment, but then moved to a one-bedroom apartment in the same building for 12 months. In June 2012 he moved back into a 2-bedroom apartment in the same building. The issue was whether the taxpayer had a “permanent place of abode” in Bahrain in the 2011 income year. If not, he was a resident of Australia on the basis of the domicile test.
At first instance, the Federal Court decided that while the taxpayer was not a resident under the ordinary concepts test, he was a resident of Australia under the domicile test as he did not have a permanent place of abode outside of Australia considering that this accommodation in Bahrain was temporary. This was overturned on appeal.
The Full Federal Court found that “place” of abode also refers to a town or country. On the evidence, it found Bahrain was the taxpayer’s “permanent place of abode” in the 2011 income year and therefore he was not a resident of Australia based on the domicile test. The High Court then refused the Commissioner’s special leave to appeal.
In the Decision Impact Statement, the ATO noted that it intended to apply the Full Federal Court’s construction in relation to the domicile test. Therefore, in seeking to determine whether an individual’s permanent place of abode is outside of Australia, it will consider whether the person has:
This, however, will depend on the individual facts and circumstances surrounding the person’s departure from Australia, their arrangements in relation to the overseas country and nature of their presence there. For example, the nature of the dwelling or dwellings may be one of the factors that will be taken into account by the ATO to determine whether an individual is permanently living overseas.
According to the ATO, it will be consolidating and updating various residency rulings including Taxation Ruling IT 2650 (Residency – permanent place of abode outside Australia) to reflect the view of the Full Federal Court, in particular, the interpretation that “place of abode” refers not only to a dwelling, but can also refer to a country, as well as Taxation Ruling TR 98/17 (Residency status of individuals entering Australia).
