It doesn't matter whether you live for 12 months in an apartment on the Champs-Elysées or for 6 months there and for 6 months on the Avenue Montaigne!

Harding v Commissioner of Taxation

It is widely-known that on 13 September 2019 the Australian High Court refused to grant the ATO special leave to appeal against the decision of the Full Federal Court in Harding v Commissioner of Taxation [2019] FCAFC 29.

The decision of the Full Federal Court therefore now stands—in particular, when determining whether a taxpayer’s “permanent place of abode” is outside Australia, and thus whether they are a resident or a non-resident of Australia, the reference to “place” is to a country or state, not to a specific house, flat or other dwelling.

Exchange between Commissioner’s Counsel and Justices Keane and Gordon

The transcript of the High Court hearing was released on 18 September 2019.

The following interesting exchange took place between the Commissioner’s Counsel (Mr S B Lloyd SC) and Justices Keane and Gordon:

KEANE J: On your approach, do you submit that if someone lives – do you distinguish between a person who for 12 months of the year lives in an apartment on the Champs‑Élysées, and a person who lives for six months of the year in that apartment, and for the other six months, around the corner in the Avenue Montaigne?

MR LLOYD: No, there may or may not be a difference, depending upon the actual factual circumstances. Our concern is about the statutory construction, and that one is meant to look at the permanence – whether somebody has a place of abode outside of Australia with a character of permanence.

KEANE J: So what possible purpose ‑ what possible purpose of the Act is served by distinguishing between a person who lives for 12 months in house A, and for six months in house A, and six months in house B, in the same country?

MR LLOYD: Because one is looking to see the sort of clear evidence of a person being there permanently. Now, if somebody is living there for ‑ ‑ ‑

KEANE J: But not in the house? Not in the particular dwelling, surely? Surely it is in the place outside Australia?

MR LLOYD: Our submission is that in order to make this a workable test, one has to be able to identify the features of permanence and simply being somewhere in a transitory situation is not what is being looked at.

GORDON J: I think my problem with that submission, Mr Lloyd, is it is too broad and too general. I think you accept that as a question of fact, whether or not, as you say, there are indicia that can be identified that give you the necessary permanence. But to set the bar as requiring a specific permanent dwelling seems to me to be a contention which just (a) is impractical, given the way in which we currently live, and (b) not, as Justice Keane has just put to you, consistent with the purpose of the legislation.

Their Honours then advised that the ATO’s proposed appeal did not enjoy sufficient prospects of success to warrant the grant of special leave to appeal to the High Court.

What next?

The comments made by Justices Keane and Gordon reinforce the view of the Full Federal Court that one determines an individual’s permanent place of abode by reference to a country, rather than a specific dwelling. As noted by Gordon J, the latter approach is impractical, given the way in which people now live. And the Federal Court’s approach avoids the need to determine whether an individual’s specific dwelling is “permanent”.

Accordingly, when determining whether an Australian individual’s permanent place of abode is (for example) in France, the conclusion should not be affected by the fact the individual lives for 6 months in an apartment on the Champs-Elysées and for 6 months in an apartment on the Avenue Montaigne, rather than 12 months on the Champs-Elysées!

Tax practitioners and their clients will now wait with interest to hear the ATO’s views on the decision.