Over the last 18 months several decisions of the Administrative Appeals Tribunal, Federal and Full Federal Courts considered the application of Australian tax residency laws including Harding v FCT [2019] FCAFC 29, FCT v Addy [2020] FCAFC 135, Stockton v FCT [2019] FCA 1679, Handsley v FCT [2019] AATA 917 and Coelho v FCT [2020] AATA 2474.
The Full Federal Court decision in FCT v Pike [2020] FCAFC 158 is the latest.
Federal Court decision
The Federal Court (Logan J) considered whether the taxpayer, born in Zimbabwe, was a resident of Australia for tax purposes in the 2009 to 2016 income years.
While the taxpayer lived and worked overseas in this period, first in Thailand (from 2009 to 2014) and then Tanzania and the United Arab Emirates (from 2014 to 2016), his wife moved to Australia in 2005 and was granted Australian permanent residency in 2009 and citizenship in 2010, and the taxpayer was granted citizenship in 2013.
Logan J found the taxpayer was a resident of Australia in the period under the ordinary concepts but not under the domicile test until April 2014. Mr Pike was also a resident of Thailand from 2009 to 2014. Therefore, Logan J looked to the tie-breaker provision (Article 4(3)) in the Double Tax Agreement (DTA) between Australia and Thailand and held that under the tie-breaker Mr Pike was a resident of Thailand only for purposes of the DTA.
DTA and the tie-breaker
In circumstances where a person is a dual tax resident of a country with which Australia has a double tax treaty, such as Australia and Thailand, most tax treaties include a tie-breaker test under which a dual resident is deemed to be a resident solely of one of the two countries for the purpose of the treaty. In the DTA, Article 4(3) states:
“Where by reason of the preceding provisions, an individual is resident of both Contracting States, the status of the person shall be determined in accordance with the following rules, applied in the order in which they are set out:
(a) the person shall be deemed to be a resident solely of the Contracting State in which a permanent home is available to the person;
(b) if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State in which the person has an habitual abode;
(c) if the person has an habitual abode in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person’s personal and economic relations are the closer.”
The Full Court (and Logan J Federal Court) considered application of this test.
Full Court decision
The Commissioner appealed the Logan J’s findings that the DTA deemed the taxpayer a resident solely of Thailand for the 2009 to 2014 income year and that he did not satisfy the domicile test until April 2014. The taxpayer cross appealed the findings of Logan J that he was a resident of Australia pursuant to ordinary concepts test, that he was a resident of Australia from April 2014 pursuant to the domicile test and that the DTA did not deem him a resident solely of Thailand during the 2009 to 2014 income years.
The Full Court (Davies, White and Steward JJ) dismissed both the Commissoner’s appeal and taxpayer’s cross appeal.
The Full Court agreed with Logan J’s findings the taxpayer was a resident of Australia under the ordinary concepts test. Although the taxpayer continued to live and work overseas, his family lived in Australia and when he travelled to Australia to visit he did so to resume living with his wife and family at their family home. Because of these findings, the Full Court ruled it was unnecessary to decide whether the taxpayer was a resident under the domicile test.
Then Full Court considered Logan J’s findings on application of the DTA. It was not in dispute between the parties that the taxpayer was a tax resident of Thailand during the 2009 to 2014 income years.
Mr Pike challenged Logan J’s finding that Mr Pike had an “habitual abode” in both Thailand and Australia for the purposes of sub-paragraph 3(b) of the DTA tie-breaker and the Commissioner challenged Logan J’s finding that Mr Pike’s personal and economic relations were closer to Thailand in the relevant years for the purposes of sub-paragraph 3(c)
After considering the language of Article 4(3) (and OECD commentary on its Model Tax Convention), the Full Court found there was no reason to impute the habitual abode of a person to be the place they had spent most days. The Full Court agreed and adopted the reasons of Logan J, concluding the taxpayer had a habitual abode in both countries.
The Full Court rejected the Commissioner’s contentions that the findings of fact should have led the Federal Court to find the taxpayer’s personal and economic relations were closer to Australia.
The taxpayer was based in Thailand for his employment and had a range of personal relations in that country; “he had a life there”. On the other hand, he had never been employed in Australia and though his wife and children lived in Australia and he supported them financially he did not consider the country as his home.
The Federal Court had found the taxpayer’s personal relations were closer to Australia to Thailand but found on balance his personal and economic relations were closer to Thailand. The Full Court said:
“…no error is discernible in the approach of the primary judge in examining Mr Pike’s personal and economic considerations. Each case must be fact specific. In some cases the personal and economic considerations may be so intertwined that they are not separate considerations, whereas in other cases, they may be quite separate and distinct matters.”
Pike again highlights the difficulty of taxpayers in understanding and ensuring their compliance with Australia’s complex individual tax residency rules.
If you require advice in relation to Australia’s individual tax residency rules or have any questions in relation to the above, please contact us:
Sam Campbell
Senior Associate | Business Law
M +61 423 515 454 | T +61 3 9611 0135
E: scampbell@sladen.com.au
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au
