Temporary accommodation overseas can be a permanent place of abode
A recent decision by the Australian Federal Court has been overturned on appeal, following a determination on how what constitutes a 'permanent place of abode'.
In a challenge to both the Australian Federal Court and the Australian Tax Department, a recent court case has been successfully appealed.
The case centred on a taxpayer who had left Australia to reside in the Middle East, where, the Court had found that the taxpayer had not established a permanent place of abode overseas (in Bahrain) due to the nature of their accommodation.
While the taxpayer had ceased to reside in Australia and had established a place of abode outside Australia, the Court was not convinced that their chosen accommodation (serviced apartments) had become a permanent place of abode. This was largely because of the following factors:
- The taxpayer did not intend to remain permanently in the place he was living in (i.e.it was established that he intended to move to alternative premises); and
- The taxpayer retained few personal belongings in the accommodation which meant that he was able to, and did, move between locations very easily.
The issue: establishing a permanent place of abode
The conclusion reached by the Court was that as the accommodation was effectively temporary in nature, it was not capable of being a 'permanent' place of abode sufficient to enable the taxpayer to be a non-resident for tax purposes.
However, on appeal from the taxpayer the Full Federal Court disagreed on this point, stating that the fact the accommodation of the taxpayer was of a temporary nature did not necessarily mean that the taxpayer had not established the overseas location as a "permanent" place of abode.
Broadly, the Court considered that restricting the meaning of 'permanent place of abode' to mean specific premises was too narrow a construction of the legislation, and that the phrase 'place of abode' in these circumstances can be extended to mean a town or country.
Intent is an important part of the story
In the taxpayer's case, the fact that he had established the clear intention to make Bahrain his permanent home, and established a place of abode there, was enough for the Court to be convinced that his permanent place of abode was not in Australia.
In the judgement, the Court also made reference to the fact that the taxpayer had resided in temporary accommodation and that this may strengthen the argument that the permanent place of abode was overseas, noting that "It is relatively commonplace for Australians who seek to make their life in another country to rent accommodation on a temporary basis, sometimes for several years, whilst they seek a more permanent home."
Expats should exercise caution …. And seek advice before you move
While this decision should prove helpful for expatriates seeking to argue that they are no longer residents of Australia, it is important to remember that each situation depends on the facts and all four residency tests need to be carefully analysed.
It is also worth remembering that the Board of Taxation has recently undertaken some work in relation to the possible reform of the residency rules for individuals. A report was provided to the Government in November 2018 although the Government has asked the Board of Taxation to carry out some further work before any possible changes will be considered.
If you are planning to leave Australia and move overseas permanently, it's important to understand the importance of a proper tax strategy. Contact us on 02 9957 4033.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.