High Court confirms Full Federal Court’s Harding tax residency ruling
The ATO’s application for special leave in the residency matter of Harding v Commissioner of Taxation has been refused by Australia’s High Court. This means the decision of the Full Federal Court (FFC) holds, which essentially provides a wider interpretation of the meaning of “permanent place of abode” than had previously been the case.
It also means it is going to make it easier for expatriates to prove that they are non-residents for tax purposes. The FFC concluded, and now appears to establish the principle, that a permanent place of abode need not be the same particular dwelling (that is, the same apartment, unit or house) in a foreign country.
To re-cap, in February the FFC overturned a Federal Court decision that had ruled a taxpayer was a resident. The Federal Court decision held that the taxpayer, who had lived and worked in the largely tax-free Arabian Peninsula, was a resident for tax purposes on the basis that the home he had established there (a rented fully-furnished apartment) was not sufficiently permanent.
The FFC disagreed with this prior decision, which held that the taxpayer was a non-resident and should therefore only have to declare his Australian sourced income, not his worldwide income
Board of Taxation’s residency recommendations Treasury has just released some miscellaneous amendments that include a redefinition of the word “taxi” in regard to certain tax arrangements. An exposure draft addresses the ongoing problem for taxpayers around the definition of taxi for FBT purposes (see the second link on this Treasury webpage, “Miscellaneous Amendments Bill Explanatory Memorandum”, and scroll to page 19). The bill, under Part 2 “Amendments commencing first day of the next quarter” has been drafted with the stated aim to resolve administrative difficulties with the previous definition “which resulted from ride sharing providers entering into the market”. The “next quarter” is generally taken to be after the amendments become law. The Explanatory Memorandum (EM) states: “Formerly, the Fringe Benefits Tax Assessment Act 1986 defined a taxi as ‘a motor vehicle licenced to operate as a taxi’. As a result of ride sharing providers entering into the market, this has become difficult to administer as the meaning of ‘licensed to operate as a taxi’ is highly contentious and may differ considerably between the states and territories depending on their licensing laws.” To avoid these difficulties, the new law replaces references to a “taxi” with “a car used for taxi travel (other than a limousine)”. The EM says the term taxi travel is defined as having the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999, namely, “travel that involves transporting passengers by taxi or limousine, for fares”. The proposed amendment will have effect after royal assent and commence, depending on when that is, from the next 1 January, 1 April, 1 July or 1 October. The EM says the amendment preserves the existing policy of covering vehicles used for travel involving transporting passengers for a fare by way of a car, but not including luxury cars such as limousines. Employers may have heard about certain fringe benefits that, while still subject to the tax, do not have the same reporting burden as other benefits. There can be consequential or flow-on affects from this exemption from reporting, such as the influence this can have on adjusted taxable income. Employers are not required to allocate the following excluded benefits to employees or report them on income statements (payment summaries).
The decision in Harding comes at the same time as the Board of Taxation continues with its review of the income tax residency rules for individuals. Note also that the above reasoning has already been applied in an Administrative Appeals Tribunal matter, Handsley and Commissioner of Taxation Amendments to FBT definition of “taxi” imminent
Benefits that attract FBT, but not the requirement to report them