Residency for Tax Purposes

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Case study of Handsley v Commissioner of Taxation [2019] AATA 917 (17 May 2019) per F D O’Loughlin, Deputy President

The residency of a taxpayer for tax purposes has been at the forefront of the tax agenda for some time. The decision of Harding v Commissioner of Taxation provided some recent guidance; however, the Commissioner has applied for special leave to appeal the Full Federal Court’s decision.

The Administrative Appeal Tribunal’s recent decision in Handsley is another instance where the meaning of a person’s ‘permanent place of abode outside Australia’ was front and centre, due to the ever more common circumstance of a taxpayer shifting between numerous countries for work.

The facts in Handsley are summarized as follows:

  • the taxpayer was an Australian citizen;
  • in July 2011, he separated from his wife of 17 years. The taxpayer’s wife and their children continued to reside in Australia;
  • in late 2011, the taxpayer met and commenced a relationship with a Filipino national and their relationship continued during the 2013 financial year;
  • in July 2012, the taxpayer left Australia with the intention of building a new life permanently overseas;
  • the taxpayer was an aircraft mechanic and he was engaged (originally for 3 months which was subsequently extended to 11 months) by an Isle of Man company to provide services at various international locations. During the relevant year, the taxpayer provided services in Vietnam, Turkey, China, Singapore and Malaysia. The longest continuous period which he spent in any one country was 45 days;
  • the taxpayer had not applied for a long-term visa or residency outside Australia (for obvious reasons). He had a short-term visa which allowed him to stay China for the period from 4 July 2012 to 4 January 2013. However, during this period the taxpayer made three trips to China for a total period of 88 days; and
  • in the year ended 30 June 2014, the taxpayer spent 341 days outside Australia, in the year ended 30 June 2015 he spent 344 days outside Australia and in the year ended 30 June 2016, he spent 320 days outside Australia.

The Tribunal found that the taxpayer was a resident of Australia for the 2013 financial year as he did not have a permanent place of abode in any of the countries he had travelled to.

The key point to take from Handsley is that if a person intends on leaving Australia indefinitely then, for tax purposes, they must sever their ties with Australia by establishing a permanent abode in a country outside Australia. The consistent approach taken by the Tribunal and the Courts is that there is no one answer to guide taxpayers on how they do this. There are some common threads which emerge from the decisions. Put simply, a taxpayer needs to establish that he or she has abandoned their residence in a permanent manner. We would argue that Mr Handsley did as much.

Author: Daniel Romano & Gabrielle Bourke

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