Do you have ‘connections’ or ‘continuity’ with Australia? The ATO says you may still be a tax resident

The recent decision of Shord v Commissioner of Taxation [2015] AATA 355 highlights the inconsistent approach taken by Tribunals when looking at an individual’s residency.

Mr Shord’s case

Mr Shord was born in the UK in 1950. He first came to Australia in 1977 on a holiday and started living in Australia in 1978. Mr Shord became an Australian citizen in 2004. Mr Shord worked at numerous places around the world as an oilfield diver.

Mr Shord married his second (and current) wife in 1992. In 1991, they purchased a property in Western Australia as joint tenants. Mrs Shord at all times lived at this property. When Mr Shord was in Australia, he also lived at this property with Mrs Shord.

In Shord, the AAT explained that:

A place may be a person’s residence even though that person is away from that place for periods of time.  The test is whether the person has retained a ‘continuity of association’ with the place, coupled with an intention to return to that place, and an attitude that the place remains ‘home’.

The AAT concluded that Mr Shord maintained significant physical, emotional and financial ties to Australia, primarily through his wife and the property in Western Australia. As a result it was held that Mr Shord maintained a ‘continuity of association’ with Australia and therefore resided in Australia.

I’m an expat – what does it mean for me?

This decision is likely to have ramifications for expatriates living and working overseas who continue to maintain some ties to Australia. It gives the ATO the opportunity to argue that an Australian remains a tax resident if they have ‘connections’ or ‘continuity of association’ with Australia.

The first step is to check your ‘connections’ and ‘continuity of association’ with Australia and see whether these are likely to create a tax residency risk.

In Dempsey v Commissioner of Taxation [2014] AATA 335, the AAT appeared to provide some relief to expatriates by reining in the Commissioner’s approach to taxing non-residents. In Dempsey, the AAT confirmed that the meaning of the word ‘resides’ in Australia must be taken from the High Court decision in Federal Commissioner of Taxation v Miller (1946) 73 CLR 93. The AAT stated ‘resides’ has its ordinary English meaning, which is:

‘to dwell permanently or for a considerable time, to have one’s settled or usual abode, to live in or at a particular place’.

We acted for Mr Dempsey. However, the ATO’s Decision Impact Statement from Dempsey indicated that the ATO would continue to pursue Australians working overseas who retain connections with Australia.

Taxpayers and advisors need to be particularly careful as the ATO audit activity continues to increase in this area.

For further information on this topic, or to discuss your residency position or the residency position of your clients, please contact Fletch Heinemann on +61 7 3231 2443.