Residency Status of Client back in Australia because of COVID19

Updated: Feb 3

If you have a client who has been living overseas but has returned to Australia because of the COVID19 pandemic, you may need to discuss with your client their tax residency status. The classification of a client's tax status always has far reaching consequences.

Unfortunately Australia's tax residency laws are not compatible with global pandemics. There is no general principal in the law to exempt people from taxation, because circumstances may have forced (for health reasons) them back to Australia. The question will be whether the client, having returned to Australia because of health related concerns, has become a resident of Australia, or could continue to regard themselves as non-resident? This might be because they they still have a residence overseas and that they have no intention to stay in Australia permanently, but only on a temporary basis until the corona virus pandemic ends. The answer to this question will be in a proper analysis of how principles of residency may apply to the particular situation of the client. As ever that is a difficult issue, particularly in times of crisis.

As Justice Rich said in Commissioner of Taxation v Miller [1946] HCA23 “In many cases, including most of those which become the subject of litigation….the question of whether a person is a resident of a place, …...depends not on some definite rule of law, but upon the view taken by a tribunal of whether he comes within a field which is very loosely defined. The question is ordinarily one of degree and therefore fact."

The assessment of a client's position can be even more troublesome for an adviser because of the pressures of the moment. It can be difficult to consider a client's position in the cold light of day, dispassionately, without one's judgement being unduly influenced by certain facts over others. A thorough analysis of the principles of residency should yield relevant answers for the client, even if those answers changes over time, as the clients particular facts and circumstances also change.

Below we provide some analysis which should be helpful to you in advising your client.

Residence according to ordinary concepts

The primary test of residency is a simple one - the test laid out in Section 6(1) of ITAA 1936 is that a client is a resident of Australia for income tax purposes if they reside in Australia. T

To paraphrase Viscount Sumner in Levene v Inland Revenue Commissioners [1928] AC 217 (Levene), the word 'reside' is plain but its application its often haphazard and beyond all forecast.

Australian tax law has adopted, time and again, the analysis provided by Viscount Cave in the same case when he said;

"My Lords, the word ‘reside’ is a familiar English word and is defined in the Oxford English Dictionary as meaning to ‘dwell permanently or for a considerable time’ to have one’s settled or usual abode, to live in or at a particular place’.

But notwithstanding the apparently simple meaning the old English cases and indeed the more recent Australian cases demonstrate how difficult it is to determine at times whether someone is residing in a place.

How important to the question of residency is a client's 'intention'?

Now the question is often asked as to whether a person must have an intention to reside in a place, and in some senses there have been questions about whether a person can be a resident if they do not intend to live in the place - because for example they were forced there by some reason, whether business, personal or otherwise.

At this point it is well to recall the words of Lord Buckmaster in Lysaght v The Commissioners of Inland Revenue (1928) 13 TC 511 in which he said in the circumstances of that case that;

"A man might well be compelled to reside here completely against his will; the exigencies of business often forbid the choice of residence and though a man may make his home elsewhere and stay in this country only because of business compels him, yet none the less, if the periods for which and the conditions under which he stays are such that they may be regarded as constituting residence, it is open to the Commissioners to find that in fact he does so reside.."

The answer to whether a client is residing in Australia because of a return to Australia in the midst of this Covid19 Pandemic will be found in the proper consideration of all the facts and circumstances of the client's presence in Australia.

Intentions are important in residency cases, though they are not necessarily determinative. In Hafza v Director General of Social Security [1985] FCA 164, Wilcox J indicated that "as a general concept residence includes two elements; physical presence in a particular place and the intention to treat that place as a home at least for the time being, not necessarily forever.” However that context in Hafza was of a family outbound who intended to return to Australia after 3 months but who ending up staying in Lebanon for almost 4 years before returning.

More recently in Harding v Commissioner of Taxation [2018] FCA 837 (Harding) Justice Derrington said at para 35;

“Necessarily the question of where a person resides is a question of fact (and, perhaps, of degree per Dixon J in Miller at 103), the conclusion of which is reached by a consideration of all of the person’s circumstances. Those circumstances will be directed to ascertaining whether a person has a physical presence or retains a “presence” in one location whilst at the same time maintaining an intention to reside there. The consideration also involves identifying the person’s “habits and conduct within the period”, however, that will include a consideration of the events occurring prior to and subsequent to the relevant period as illuminating the relevance of the events in the relevant period.”

So we can see here a continuation of the legal principle of intention as being something that we should usually look for. However His Honour then continues in his judgement in Harding to illustrate the difficulties that arise when it comes to discerning a person's intentions.

“43 The determination of whether or not a person has the intention to treat a particular place as their home will involve a consideration of numerous factors. Certainly, the evidence of the taxpayer as to their intention at the relevant time will be significant as would be any contemporaneous statement made by a taxpayer as the location of their residency. However, the objective manifestation of a person’s intention is often a more accurate indicator of their state of mind at a particular time in the past than is an assertion about that alleged prior intent. A person’s present belief about what their intention may have been in the past will necessarily be affected by their sub-conscious and the context in which they are called upon to identify that past intention. That is especially so when, at the relevant time, the person did not then consider what their then intention may have been.

44 Even evidence of a person’s contemporaneous statement as to their intention at a particular time in the past should be approached with a degree of care. Whilst that is likely to be more accurate than their present assertion of what their previous intention was, the value of the contemporaneous evidence will be affected by the circumstances of the statement and reasons for the making of the statement.

45 That being so, the more cogent evidence of a person’s prior intention as to where they resided are the objective facts which reflect the person’s then intention. In ascertaining whether a person intended to make a particular place their residence or to terminate their residency in a place, the facts and circumstances surrounding their mode of living will be a strong indicator of their presence in or continued association with a particular place and the intention accompanying that presence.”

So at this time of unprecedented crisis the most appropriate advice to give an Australian expatriate who has returned to Australia because of DFAT travel advice, but who ordinarily lives overseas, is that their intentions to live in Australia temporarily are important.

The difficulty however is that the longer the crisis continues, the longer that Australian expat family might find themselves living in Australia, then the greater the possibility that their stay in Australia begins to exhibit a degree of habit and routine, familial and financial connection that is consistent with residing in a place.

The problem with identifying a tipping point where the person's intention not to live in Australia becomes at odds with how actual events transpire is best summed up by Justice Logan's recent comments in Pike v Commissioner of Taxation (2019) FCA 2185 when he says;

"The intention of a person in relation to residence is always relevant, but not determinative. Intention is but one factor to be considered in the context of the whole of the circumstances of a given case. As Lord Buckmaster observed in another leading case, Commissioners of Inland Revenue v Lysaght [1928] AC 234, at 248, “A man might well be compelled to reside here completely against his will”. His Lordship cited as an example the circumstance of a man compelled by the exigencies of business to reside at a particular place. A person’s preference might be to reside in one place but the exigencies of business might require that they reside in another. And, where a person has a close family, the exigencies of business might require that they reside in two places, the one where work is available; the other where their family is located, dividing their time as best they can between the two. That is this case."


At the end of the day if an Australian expat client can show that they are not living in Australia permanently and that they do not have a settled or usual abode here, because of the circumstances of their return to Australia demonstrate that it is of a temporary nature, then they should be able to argue that they have not become resident in accordance with ordinary concepts.

Footnote - 26 March 2020 the ATO published its guidance For its part the ATO has recently confirmed its view that an Australian non-resident who is temporarily in Australia because of COVID-19 will not become an Australian resident provided that they usually live overseas and they intend to return to their overseas home as soon as they are able to. However, they indicate also that tax residency issues will become more complicate if the non-resident ends up staying for a lengthy period and the non-resident does not plan to return to their overseas home.


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