Australian expats could find it easier to argue they are non-residents for tax purposes following a new court ruling against the Australian Taxation Office suggesting that where you usually live is more important than your form of accommodation.

Key points: Australian expats have more clarity after the Full Federal Court overturned a decision relating to tax residency

Australian expats have more clarity after the Full Federal Court overturned a decision relating to tax residency The case looked at the concept of 'permanent place of abode' and found that ultimately the place or country where you live is what matters, not the type of accommodation

The case looked at the concept of 'permanent place of abode' and found that ultimately the place or country where you live is what matters, not the type of accommodation The Federal Government is undertaking a review of tax residency rules in a bid to make the law more simple

The Full Federal Court on Monday overturned an original court decision involving former aircraft engineer Glenn Harding, which had highlighted the difficulty in determining a "permanent place of abode" in modern-day living.

The ruling considered issues including whether living in a fully furnished apartment overseas, while still having your mail sent to an address in Australia, is enough to convince the tax man that you are a non-resident for tax purposes.

In 2009 Mr Harding departed Australia to take up full-time employment in Saudi Arabia.

He chose to live in Bahrain and travel daily to Dannan in Saudi Arabia for work. He lived for more than five years in the same block of fully furnished apartments.

On June 8 Mr Harding lost his Federal Court appeal against an undisclosed tax assessment from the Australian Taxation Office issued for the 2011 income year.

Justice Derrington at the time ruled that Mr Harding's accommodation in the Classic Towers apartments "was of a temporary nature and type".

"It was of a kind where he did not put down his permanent roots in the sense of establishing his own home or dwelling," Justice Derrington said.

But the Full Federal Court on Monday overturned the decision, accepting Mr Harding's argument that he had made his life in Bahrain, and the court should therefore accept that he had a permanent place of abode there.

Don't lose sight of the facts: judge

The important issue, the court said, when it comes to the concept of "permanent place of abode" was not the type of dwelling someone lives in, but the place or country they reside in.

Justice Logan in his judgement noted that "in some contexts, occupancy in a particular place abroad of temporary accommodation may well be antithetical to satisfaction that a person's 'permanent place of abode' is outside Australia".

But he said in this case, in the 2011 income year, Mr Harding's "permanent place of abode" was outside Australia, in Bahrain.

"To adapt an idiom, to focus on whether a particular tree (temporary accommodation) is present runs the risk of losing sight of the fact that this tree forms part of a wider wood (permanent place of abode outside Australia)," he said.

The three judges then went on to add: "On this issue alone we respectfully disagree with the learned primary judge. In our view, for the reasons given below, the 'place' of abode, in the specific legislative context here, also refers to a town or a country."

A spokesman for the Australian Taxation Office said: "The ATO generally does not comment on individual cases due to privacy provisions, also noting that the appeal period in this case has not expired".

The solicitors working for Mr Harding were Brisbane-based Cooper Grace Ward lawyers. A senior associate at the firm, Murray Shume, was pleased the court had made clear that the concept of "permanent place of abode" was not about living in a specific type of accommodation, but rather the town or country a person lives in.

He does not think this will open the flood gates for other taxpayers to argue they are non-residents, but it does provide greater taxpayers clarity on residency rules.

"That's just one test of residency, there's four tests for determining whether an individual is a resident," he said.

Other matters the court may consider when deciding residency

These four tests for determining residency are — the resides test; the domicile and permanent place of abode test; the 183-day test; and the Commonwealth superannuation fund test.

"The unfortunate thing about residency is that a lot of tests are based on individual facts and circumstances," Mr Shume said.

"If you have a family here [in Australia] and you are coming back here regularly that would still be high-risk [for the ATO] in terms of whether you reside overseas ordinarily. "

"You can't just say, 'because Mr Harding was not a resident and my circumstances are similar', that you're not a resident. It's not as easy as that."

KPMG tax partner Ablean Saoud said the case could pave the way for other Australian expats to argue they are non-residents if they are in dispute with the ATO, but agreed the court would always look at a variety of facts to determine residency apartment from "permanent place of abode".

"Say for example you have lived in serviced apartments for just a year it may not be enough," she said.

"You have to be outside Australia for at least two years, and then you have to consider factors such as where your family resides, how often you travel back to Australia, and when you come back to Australia — are you living in a home or a hotel and what's the purpose of you coming back to Australia? It's a whole range of factors."

Case 'definitely a win for taxpayers'

But she said the case did at least give clarity about the meaning of "permanent place of abode".

She said some countries don't have long-term leases available and it might be customary in some countries to have a serviced apartment rather than a long-term lease.

"The original [Federal Court] ruling that was handed down made it more difficult for people to break tax residency," she said. "This [new decision] is definitely a win for taxpayers."

"This more holistic approach to the concept of a 'place of abode' is welcome in the context of a piece of legislation that has been in place for decades, and makes room for appropriate recognition of the variety of accommodation circumstances that may exist for expatriates working in different parts of the world."

The Federal Government is currently reviewing tax residency rules, first enacted in 1930, following a review by its tax advisory board, known as the Board of Taxation.

The Board of Tax found that the rules "do not meet the objectives of simplicity, efficiency, equity and integrity" and require "reform as a matter of priority".

It said words such as 'permanent place of abode' and 'domicile' are antiquated legal concepts going back to the 19th century.

Ms Saoud welcomed the Government's review of residency rules, saying it needs to make the law simpler so that it is easier for taxpayers who live and work overseas to determine their residency.