In summary

The Commissioner has released his Decision Impact Statement concerning Commissioner of Taxation v Pike [2020] FCAFC 158 (Pike). The case demonstrates some of the risks facing taxpayers who live global, cosmopolitan lifestyles – particularly high net worth individuals and businesspeople who may maintain multiple rental premises and conduct their work in multiple jurisdictions.

The Court decided that a person can have more than one habitual place of abode at the same time, as well as confirming that rental accommodation can constitute a “permanent abode” for the purposes of a double tax agreement (DTA). Consequently, a taxpayer may be a tax resident even if their family is located elsewhere or they spend more of their time out of the jurisdiction. Close attention must be given to all of the circumstances to ensure unintended residency outcomes do not arise.

In detail

The Commissioner has released his Decision Impact Statement concerning  the Pike case for comment.

Briefly, the facts in Pike were that the taxpayer was born in Zimbabwe, where he lived and owned a home until moving to Australia in 2005 with his de facto spouse and their children. He was unable to find work in Australia and moved to Thailand alone to take a job there the following year (2006). He then lived and worked in Thailand for eight years while his de facto spouse and children lived in rental accommodation in Australia, which he regularly visited for as long as his work commitments allowed. When his family were granted Australian citizenship in 2010, he sold his house in Zimbabwe and purchased vacant land in Australia with his partner with the intention of building a family home here, although the plan was never realised and the land was sold undeveloped in 2013. The taxpayer obtained his Australian citizenship in 2014 but then relocated to Tanzania for employment purposes, then to Dubai in 2016.

The issues before the Court were whether Mr Pike was a “resident” under Australian domestic law and how the residency tie-breaker test in the Thailand DTA should apply.

The Court agreed with the primary judge that Mr Pike was a resident of Australia according to ordinary concepts (for domestic law purposes), owing to his maintenance of a family home in Australia. The Court also concluded that the DTA tie-breaker rule deemed him to be a resident of Thailand up until he acquired land in Australia, on the basis he had a permanent home and habitual abode in both jurisdictions but his personal and economic relations were closer to Thailand.

Interestingly, Davies, White and Steward JJ agreed with Logan J at first instance that Mr Pike had a “habitual abode” within the meaning of the DTA in both Australia and Thailand during his eight years living in Thailand and that there was no basis for imputing the habitual abode of a person as being where they spent more days. Further, the Court took no issue with Logan J’s decision that rental accommodation can constitute a “permanent home” within the meaning of the DTA.

This demonstrates the risks faced by taxpayers who live a global, cosmopolitan lifestyle: especially high net worth individuals and businesspeople who may maintain multiple rental premises and do their work in multiple jurisdictions. The judgment shows that a person’s habitual place of abode is not necessarily limited to the jurisdiction where the family home is located or where they spend their time most. Close attention must be given to all aspects of the taxpayer’s personal and business connections in each jurisdiction, in addition to the frequency and duration of their stay in each jurisdiction as part of the settled routine of their life.

Perhaps unsurprisingly, the ATO expresses the view that the decision has no implications for its existing advice and guidance (because it turns on its particular facts) and repeats Logan J’s observation that “opinions could differ” on the question of the application of the domicile test.

The Decision Impact Statement is open for comment until 11 December 2020.