Commissioner of Taxation v Harding [2019] HCATrans 191 (13 September 2019)

Last Updated: 18 September 2019

[2019] HCATrans 191

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B15 of 2019

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

GLENN GERALD HARDING

Respondent

Application for special leave to appeal

KEANE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 SEPTEMBER 2019, AT 11.56 AM

Copyright in the High Court of Australia
MR S.B. LLOYD, SC: May it please the Court, I appear in this matter with MR D.J. BUTLER, for the Commissioner. (instructed by Australian Government Solicitor)

MR B.J. SULLIVAN, SC: If it please the Court, I appear with my learned friend, MR C.J. PEADON, for the respondent. (instructed by PricewaterhouseCoopers)

KEANE J: Mr Lloyd.

MR LLOYD: The application concerns the statutory definition of “resident of Australia” for income tax purposes, for Australians working overseas. The definition dictates whether or not they will have to pay tax on their overseas income. For those working in Australia, it will determine the rates of tax at which they will have to pay. We say that the matter is of general or public importance, and a grant of special leave should be granted.

Indeed, it is all the more important for a provision that was enacted prior to the advent of commercial air travel. Nowadays one sees many more people travelling to Australia and from Australia, giving rise to the issues arising more. As our affidavit and the book indicates, it is an increasingly important issue.

GORDON J: Can I ask one question about that submission ‑ and that is what appears on pages 78 to 79 of application book – and that is, is that this is a very odd way in which this matter has come up through the lower courts. Odd in this sense, that there has been, in effect, a putting to one side of the very statutory provision which has given rise to it, ignored, and it has been argued on a different basis.

Now, the reason why that is important, as you know, is that the way in which the Court looks at it is not by reference to the statute which requires you to consider whether or not the Commissioner’s satisfaction was the relevant test, but a different question.

MR LLOYD: I think at least the Full Court did look at it correctly from that, noting that it turns on the Commissioner’s satisfaction. It is true that that court and the court below made the assessments for itself. What we would say about that is there are four possible scenarios that could happen if special leave were granted.

If special leave were granted and the Court accepted that the Full Court wrongly construed “place of abode”, or “permanent place of abode”, and that Justice Derrington had correctly construed them, then the Court could properly, exercising its jurisdiction as a court hearing appeals in the strict sense, allow the appeal and dismiss the appeal to the court below, and allow Justice Derrington’s judgment to prevail. If, however, our argument is rejected on the appeal, then the Court would dismiss our appeal, and the Full Court’s decision would be allowed to prevail.

The question of whether or not it should have done it in that way would arise in the appeal to this Court, so that would not be a problem. If this Court came to the view that neither Justice Derrington’s nor the Full Court’s construction was the correct construction, then if, according to ‑ ‑ ‑

GORDON J: Well, they would have to because they are not asking the right question posed by the statute is the difficulty, is it not?

MR LLOYD: Well, we say that ‑ the court below said that it only took issue with what Justice Derrington said on one matter, which was what “place of abode” meant and in that respect we say the Court could say that Justice Derrington was correct, and the Full Court was wrong, and simply allow the appeal and to set aside the orders of the Full Court. But what I am saying is, if the meaning of “place of abode” was different to what Justice Derrington said and the Full Court said, then this Court would still be in a position to deal with it by doing one of two things.

If, according to the Kolotex Hosiery approach, there was only one lawful outcome, the Court would make orders consistent with that lawful outcome. If the decision was one which turned on – whereby the Commissioner could have reached different states of satisfaction, then it would be appropriate just to remit it to the Commissioner.

So we say that the issue was fully agitated – so the question of construction of what “place of abode” meant was fully agitated at both levels and the Court has the advantage of both levels of the court below to understand what they considered “place of abode” meant. and we say that it is an appropriate vehicle. Otherwise, being a decision of the Full Court, one will expect AAT, where this issue usually comes up to follow what the AAT has said, and that will create further difficulties in addressing what we say is a wrong approach.

So to turn back to what the issues are, I will focus upon the domicile test, which is perhaps the more critical ‑ ‑ ‑

GORDON J: That was conceded, was it not? The domicile, the fact that the respondent was domiciled in Australia was the subject of a concession?

MR LLOYD: Yes, but a domicile test. What I will ask the Court to go to is page 118 of the book, which has the definition of “resident or resident of Australia”. One sees in that that there are two paragraphs, (a) and (b); (b) deals only with corporations, and I will not discuss it further. Paragraph (a) identifies that a “resident” means:

a person . . . who resides in Australia –

It is often called the ordinary concepts test, because the word “resides” has its ordinary meaning. I will come back to that, if necessary, later. There then are three inclusive paragraphs, which add to people who, as it were, ordinarily reside. The first one, (i), is the so‑called – I will not address the third at all, it is not material to this case.

The first one, in what is called the domicile test, we say it operates in this way. Subject to the exception, which turns on the Commissioner’s state of satisfaction, each person whose domicile is in Australia is a resident. So that is to say, every Australian domiciled person is a resident, subject to the exception. As the joint judgment observed, the definition was added at the time when Australia started to tax residents on worldwide income.

So subject to the exception, it brought within the scope of Australian tax obligations the worldwide income of all persons who are Australian domiciles. Now, the potentially broad effect of that is then constrained by the fact that taxpayers who have an Australian domicile can seek to satisfy the Commissioner that the exception applies. The exception applies to persons who satisfy the Commissioner that the person’s permanent place of abode is outside Australia.

The first ground of our application concerns the meaning of “permanent place of abode.” Now, that expression, of course, includes the concept of “place of abode”, and that expression is also used in the next test, the so‑called 183‑day test, which is in paragraph (ii). In essence, irrespective of whether a person is residing in Australia under ordinary concepts, a person who has physically been in Australia for 183 days or more of a year of income is a resident of Australia, unless the Commissioner is satisfied that the exception applies.

For relevant purposes, the exception turns on whether the person’s usual place of abode is outside Australia, so it carries or considers or uses the same expression. Now, this exception is designed to ensure, we say, that persons who are merely visitors to Australia are not taken to be residents, even if they visit for longer than 183 days. That that is the purpose is acknowledged by the Full Court at paragraph 36; I will not take the Court to it.

So we say that the way this test, that is to say the 183‑day test operates, is that if a person shows that, notwithstanding that they have been in Australia for more than half of a year, their usual place of abode is overseas, and they do not intend to take up residence in Australia, then they are not residents. Now, typically, this has been done and should be done by showing that these visitors have dwelling places, places of abode, in another country, and intend to return afterwards. And that information, or evidence pertaining to that, is almost inevitably collected in a visa application. When that person comes here, they will say what their position is, and that will be able to be established.

Now, if, contrary to our submission, but inconsistently with the Full Court’s decision, “place of abode” were to mean “country of abode”, then assuming that “place of abode” means the same thing in paragraph (i) and (ii), then we would say the understanding of the 183‑day test is liable to be thrown into disarray. One would have to identify, then, what the person’s usual country is in a year of income, being, by definition, a country which they have to have spent more than half of the year in that year of income in Australia.

GORDON J: So we are driven back, are we not, to what is on page 81 of the application book? That is, the single point of difference, paragraphs 25 and 26. And, in particular, the contrast between the conclusion reached on the facts between the second last sentence at the end, above paragraph 26, and then 26? In other words, it is permanent abode overseas, i.e. Bahrain, just has not got a permanent address in Bahrain. That is distinct from “country”.

MR LLOYD: Indeed. I mean, I accept that is the critical point. So their Honours come up ‑ and I will come to this ‑ for reasons for why “place of abode” should, in the domicile test, mean “country of abode”. Now, we say that is wrong, but that is what they come up with. What I am trying to say here is, if “place of abode” in the (i) test, the domicile test, means “country of abode”, presumably it also means “country of abode” in the second test, the 183‑day test.

Now, if that is right, then you have to work out what somebody’s usual country of abode is in a given year where they have spent more than half of the year in Australia. You would think that would be Australia. So you are made a resident of Australia, unless your usual country of abode is overseas but if “usual country” means where you have spent most of that year of income, it does not work.

Another possible way of seeing it is, well, your usual country of abode is, “I lived in Germany for 27 years before coming to Australia so until I have lived in Australia for 27 years, Germany is my usual country of abode”. That also, we say, is not what is intended. What is intended is to say, “You were visiting Australia, maybe for nine months, but you had a home in Germany. As a result of having a home in Germany, your usual place of abode, even though you were here for longer than nine months, was your home in Germany”. That means that the Commissioner will be satisfied, and the test, we say, is passed. That is how the 183‑day test, it operates, and should operate.

The issue that this case has raised has led to I think in the order of a dozen Federal Court and AAT cases awaiting pending the outcome of this application, because this meaning of “place of abode” affects those decisions. Now, the way the Court gets there is through a concept of legislative history. If I could go first of all to page 90, on paragraph 48. It says, first of all, they agree that “place of abode” ‑ its usual meaning is a dwelling or home. Then their Honours, however, conclude that in this statutory context, it should be read as including “country” or “state”. One sees that on page 86 at the last line, essentially:

It follows that the word “place” should accordingly be read as including a reference to a country or state.

Then at the beginning of that paragraph one sees that that is said in the context of the legislative history, which is then a reference back to paragraph 33 on page 83.

GORDON J: Sorry, can you just stop there. Is it not, in paragraph 40, that their Honours are drawing a distinction between (i) and (ii)? I.e.:

permanent place of abode ‑

in (i), versus:

usual place of abode is outside Australia and that the person does not intend to take up residence in Australia –

MR LLOYD: No, with respect. I mean, they do not mention – one of our complaints is they do not ever mention the “usual place of abode” test. They mention it in what the notes say and then once they have turned to analysing what “place of abode” means, they do not go back to say how that meaning works, so they are not distinguishing it from (ii).

What they say in paragraph 40 ‑ first of all, they seem to say, well, it says “place of abode” and not “abode”. That must mean it is more than just abode. Now, on one level, we agree with that. I mean, a place of abode means a place of dwelling, we would say, is the common understanding. That could be a house. It could, as the case is in some cases, be for itinerant people, it could be a car or a campsite, something that might not be an abode.

KEANE J: On your approach, do you submit that if someone lives – do you distinguish between a person who for 12 months of the year lives in an apartment on the Champs‑Élysées, and a person who lives for six months of the year in that apartment, and for the other six months, around the corner in the Avenue Montaigne?

MR LLOYD: No, there may or may not be a difference, depending upon the actual factual circumstances. Our concern is about the statutory construction, and that one is meant to look at the permanence – whether somebody has a place of abode outside of Australia with a character of permanence.

Now, what is said in this paragraph, in paragraph 40, apart from the point I just made about needing to give the words “place of” work to do, which we say is wrong because it does have work to do even on our construction, and on the usual meaning it has work to do, it is said that it is necessary to achieve the purpose identified in the notes.

Now, what I wanted to do is go back to the purpose in the notes, which is back on page 84, and particularly in paragraph 35. The notes make clear that extending the definition of “resident” to persons with an Australian domicile will, inter alia, include persons who have abandoned their residence in Australia and have no intention of residing there.

This is because such persons may yet have an Australian domicile, if they have not put down roots somewhere else, or have not got a new domicile of choice. So, you know, people who have abandoned Australian residence may still have it. So they are included, they are not the only ones included.

The note also shows that there was an intention to capture High Commissioners, who would have an Australian domicile, one would expect, and notwithstanding that they might have quite established residences in their places, are understood not to fall within the exception of having a permanent place of abode outside. And then it is said – there is an explanation for the exception, and that is at about line 35, and it says ‑ it identifies a group of persons who have:

definitely abandoned their Australian residence –

Now, the test selected to exclude such persons is whether the Commissioner is satisfied that a person’s permanent place of abode is outside Australia. It may be seen that the notion of “permanence” added to the concept of “place of abode” will leave within the definition of “resident” persons who have an overseas place of abode, but only on a temporary or transitory manner. So they would stay in.

The people who are excluded are people who have obtained a place of abode in a manner which has the character of permanence. Now, there is, we say, no need to give “place” the meaning of “country” because what Parliament has said is, we want to tax all Australian people with Australian domiciles but we will let out people who have definitely abandoned Australia. But they have not used the “definitely abandoned” as a test. They have instead identified as the touchstone whether they have a permanent place of abode outside of Australia.

So if somebody has, for example, the most extreme example, you could say, bought a house, then they would be able to go to the Commissioner and say, “I am an Australian domiciled person, but I have bought a house in Germany. I am out”, and that would be ‑ ‑ ‑

GORDON J: Can I just test that? So do you accept or reject what is set out on page 81, which is the trial judge’s conclusion and construction, that it has to be a specific permanent dwelling in a specific country?

MR LLOYD: We say that that is right, that “place of abode” has the meaning of a dwelling and then “permanent” means there has to be a character of permanence.

KEANE J: So what possible purpose ‑ what possible purpose of the Act is served by distinguishing between a person who lives for 12 months in house A, and for six months in house A, and six months in house B, in the same country?

MR LLOYD: Because one is looking to see the sort of clear evidence of a person being there permanently. Now, if somebody is living there for ‑ ‑ ‑

KEANE J: But not in the house? Not in the particular dwelling, surely? Surely it is in the place outside Australia?

MR LLOYD: Our submission is that in order to make this a workable test, one has to be able to identify the features of permanence and simply being somewhere in a transitory situation is not what is being looked at.

GORDON J: I think my problem with that submission, Mr Lloyd, is it is too broad and too general. I think you accept that as a question of fact, whether or not, as you say, there are indicia that can be identified that give you the necessary permanence. But to set the bar as requiring a specific permanent dwelling seems to me to be a contention which just (a) is impractical, given the way in which we currently live, and (b) not, as Justice Keane has just put to you, consistent with the purpose of the legislation.

MR LLOYD: Well, we would say that even if, on the proper construction, there is a need to look more broadly than a particular building, it cannot mean a country of abode because that then destroys the 183‑day test. And by allowing this case to stand, one will expect that the AAT and other places will say, we are bound to say that when it says “place of abode” it means “country of abode”.

On the 183‑day test, an application of country of abode means you are looking at the usual country of abode. And the usual country of abode, if one looks at it for the year only, is by definition going to be Australia, because they have to have been in Australia for more than half a year in order to fall within the test in the first place.

If one looks at it over the lifetime of the person, it then does not make sense, whereas if one looks at whether or not they actually have a place of abode, in its normal, ordinary meaning – that is, a meaning which makes sense, and we say also makes sense and operates in the domicile test because that allows for the Commissioner to be satisfied that, yes, you do have sufficiently permanent arrangements with your dwelling that I am satisfied that you are not a resident, and you should not be treated as a resident.

We say that that is a construction that works for both limbs. The current construction, we say, is unnecessary for the first limb, and positively damages the second limb.

KEANE J: I see the light is on, Mr Lloyd.

MR LLOYD: Thank you, your Honour.

KEANE J: Thank you, Mr Lloyd. We do not need to trouble you, Mr Sullivan.

The proposed appeal does not enjoy sufficient prospects of success to warrant the grant of special leave to appeal. The application is refused with costs.

The Court will now adjourn to reconstitute.

AT 12.19 PM THE MATTER WAS CONCLUDED