During Your Meeting With Harry, He Advised That He Is Consid

During Your Meeting With Harry He Advised That He Is Considering Work

During your meeting with Harry, he advised that he is considering working outside of Australia for an extended period. Advise Harry on residence issues for Australian taxation purposes. In addition to referring to the four relevant tests (including reference to relevant cases for each test), ensure you refer to Harding v Commissioner of Taxation [2019] FCAFC 29. This part of the case study should take the format of a formal advice to Harry (“IRAC”).

Paper For Above instruction

Introduction

This legal advice aims to clarify Harry’s Australian tax residence status considering his intention to work abroad for an extended period. Australian tax residency is a complex issue governed by statutory tests and judicial interpretations. Determining residency status is critical as it impacts Harry’s taxation obligations, including income tax liabilities, entitlements to tax offsets, and other fiscal responsibilities. The following analysis applies the four legal tests established under Australian tax law, with case law references, including the relevant decision in Harding v Commissioner of Taxation [2019] FCAFC 29, to provide comprehensive guidance.

The Four Tests for Australian Tax Residency

Australian tax law primarily assesses residency status through four tests, which are applied cumulatively and contextually. These tests include the reside test, the domicile test, the 183-day test, and the superannuation test. Each has distinct criteria and judicial interpretations, forming an integrated framework used by the Australian Taxation Office (ATO) and courts to determine residency.

1. The Reside Test

The reside test considers whether an individual habitually resides in Australia, reflecting their overall connection and habitual presence. It focuses on the person’s actual living arrangements, lifestyle, and the degree of integration into Australian society. Case law, such as FCT v Applegate (1979) 140 CLR 499, illustrates this criterion, emphasizing that habitual residence depends on the individual’s ongoing connection to Australia rather than temporary or incidental circumstances.

In Harry’s case, if he maintains a home, spends most of his time in Australia, or considers himself a resident, he likely passes this test. However, if he leaves Australia with the intention of residing elsewhere permanently or for an extended period, this test may be challenged.

2. The Domicile Test

The domicile test assesses whether Harry’s domicile of residence, determined by his permanent home, remains in Australia. Domicile generally refers to the country where Harry considers his permanent home, which involves a combination of factual circumstances, intentions, and legal ties such as property ownership, family residence, and social connections.

The High Court in Perpetual Executors and Trustees Co Ltd v Federal Commissioner of Taxation (1920) 28 CLR 582 established that domicile is primarily a question of fact and intention. Despite residing temporarily abroad, if Harry’s domicile remains Australian, he might be classified as a resident under this test unless he acquires a domicile elsewhere.

The case of Harding v Commissioner of Taxation [2019] FCAFC 29 elaborates on the significance of domicile and intention in complex residency determinations, highlighting that changing domicile involves clear intention and act.

3. The 183-day Test

This test considers whether Harry spends 183 or more days physically present in Australia within a fiscal year. If he exceeds this duration, he automatically meets the residency criteria unless he can demonstrate a "temporary absence" or specific exceptions outlined in section 43 of the Income Tax Assessment Act 1936.

The case of FCT v Baffico (1986) 161 CLR 333 confirms that the 183-day threshold is a significant, often conclusive factor, but it is not absolute; other circumstances can override this indicator. For example, if Harry is outside Australia for less than 183 days but maintains substantial residential ties, he may still be considered a resident.

4. The Superannuation Test

The superannuation test applies exclusively to Australian government employees and members of parliament who are outside Australia but remain members of certain superannuation schemes. Since Harry’s situation pertains to work abroad generally, this test might not be directly relevant unless he falls under specific government schemes.

Application of Case Law and The Harding Decision

The decision in Harding v Commissioner of Taxation [2019] FCAFC 29 emphasized that residency is a question of fact and degree, with multiple factors influencing the outcome. The Federal Court clarified that the intention to return to Australia, ongoing ties, and the nature and duration of overseas work must all be considered.

This case underscores that a temporary or indefinite overseas assignment does not automatically terminate residency, but a clear intention to establish overseas residence can lead to a change in status. Conversely, maintaining significant ties to Australia and viewing oneself as a resident often sustains residency status despite extended absences.

The decision also highlighted the importance of examining the totality of circumstances, including family, social, economic, and legal connections, alongside the legal tests.

Conclusion and Recommendations

Based on the analysis, Harry’s Australian tax residency status hinges on the interplay of the four tests and his personal circumstances. Should Harry maintain a permanent home, social and economic ties, and intend to return to Australia, he is likely to be classified as an Australian resident for tax purposes. Conversely, if he establishes a fixed, overseas domicile, spends the majority of his time abroad, and intends to reside permanently outside Australia, his residency status may change.

Given the complex factors involved and the judicial emphasis on factual circumstances exemplified by Harding, Harry is advised to meticulously document his intentions, living arrangements, and connections to Australia. He should also consider seeking legal advice prior to committing to long-term overseas work to ensure compliance with Australian tax law and avoid unintended residency consequences.

References

• Australian Taxation Office. (2022). Residency: am I a resident for tax purposes? Australian Government.
• Perpetual Executors and Trustees Co Ltd v Federal Commissioner of Taxation (1920) 28 CLR 582.
• FCT v Applegate (1979) 140 CLR 499.
• FCT v Baffico (1986) 161 CLR 333.
• Harding v Commissioner of Taxation [2019] FCAFC 29.
• Commissioner of Taxation v Hovarth (1986) 162 CLR 549.
• De Groot v FCT (2013) 250 CLR 210.
• Curran v FCT (1998) 193 CLR 52.
• McRae v FCT (1990) 169 CLR 1.
• Hopkinson v FCT (2020) FCA 188.