Australian citizen Alexander Handsley had objected an ATO decision to assess him as a tax resident for the 2013 year on the basis he did not disclose that he had a non-Australian domicile or that he had a permanent place of abode outside of Australia at any time during the 2013 year.
Mr Handsley, an aircraft mechanic, provided services in Vietnam, Turkey, China, Singapore and Malaysia, and spent the year in multiple locations for short periods, spending just 50 days in Australia.
He had earlier separated with his wife of 17 years and had intended to build a new life with his new partner, a Filipina, although he had not applied for a long-term visa or residency status anywhere outside Australia.
Mr Handsley sold what had been a family home to complete a divorce settlement in early 2013, did not own a motor vehicle in Australia, and did not have any place in Australia that he could call his own or in respect of which he had any long-term entitlement to return to.
AAT deputy president Frank D O’Loughlin said in his judgment that, while Mr Handsley had done enough to break his residence ties with Australia, he had not managed to change his place of domicile nor had he managed to change his permanent place of abode, due to the fact that the multiple temporary places of abode were in different countries.
“That conclusion is the product of legal principles under which a person in transition between places of residence, having abandoned one but not yet done enough to take up another, is deemed to have retained his or her Australian domicile, and unless a permanent place of abode outside Australia has been established, the Australian domicile will dictate Australian residence for the purposes of the Assessment Acts,” Mr O’Loughlin said.
The residency headache
The case follows from Harding v Commissioner of Taxation, where the Full Federal Court’s decision went in favour of the taxpayer, ruling that a “permanent place of abode” should be interpreted more widely to consider whether a person is living permanently in a particular “country or state”, and not just the permanence of a specific house, flat or dwelling.
The commissioner of taxation has since sought special leave to appeal the decision to the High Court of Australia.
PwC, who is now currently acting on behalf of the taxpayer, had last week published a memo noting that the ATO has used new figures to support its appeal, noting that it conducted 18,350 residency audits from July to December 2018, up from just 658 in 2015–16.
It raised $70.8 million in tax liabilities in 2017–18, up from $17.4 million in 2015–16.
The Board of Taxation is currently reviewing income tax residency rules for individuals, while the government has previously refrained from taking a position on the recommendations, with the board urged to conduct further consultation on the proposed changes.
“The question is whether clarity, including how the tax system should operate in a modern age where people have a high level of mobility, could be better achieved through legislative reform and specifically a new statutory test as recommended by the BoT in its report published in September 2018,” PwC said.