What the Addy case means for the 'locked down' Aussie Expat’s Residency

Updated: Feb 3

In Commissioner of Taxation v Addy [2020] FCAFC 135 handed down on 6 August 2020, the Full Federal Court dealt with the concepts of tax residency according to ordinary concepts, and whether Australia's Backpacker Tax discriminated against the taxpayer from the United Kingdom. On both issues, it overturned the Court's initial decision.

However for Australian expats who have returned to Australia because of COVID-19 the case has great significance because the court dealt with the 183 day test of residency. Rarely has an Australian court dealt with this test so expansively and the judicial pronouncements will have significant and long lasting implications for Australian tax practice. If you have a client who is back in Australia due to COVID19 but who is intending on returning to their home overseas, once the pandemic subsides, please read on.

183-Day Test

While this test has always been important, the way that tax practitioners think about this test may need to change, even in a self-assessment regime. In Addy, the Commissioner argued, somewhat counter intuitively, that the 183-day test should not apply unless the Commissioner had formed the view that the person intended to reside in Australia and did not have a usual place abode overseas.

However, the Court unanimously rejected that approach. Steward J explained how the Court viewed the application of the 183-day test, at paragraph 299, when he said; “the purpose of the test is to supplement the test of residency in ordinary concepts in a practical way. It permits a conclusion to be reached about residency by the simple expedient of the taxpayer being physically in Australia during more than one-half of a year of income. It would seriously undermine the utility of this test if it also required, in every case, the Commissioner to form a view about the taxpayer’s usual of abode and intentions about residency”.

His Honour further noted at paragraph 313 that:

“by its terms, and as already mentioned, that test results in a person being a resident of Australia if they satisfy the objective requirement of being actually in Australia for more than the stipulated period ‘unless’ the Commissioner is ‘satisfied’ that the taxpayer’s usual place of abode is not in Australia and the person does not intend to take up residence in Australia.” and further at paragraph 314 that; “..the valid existence of a state of satisfaction concerning the matters require