The fine line in residency: Contrasting the decisions in Harding and Quy
Two engineers, each of whom worked in a low-tax overseas location while continuing to own homes in Australia in which their respective families resided. One breaks Australian residency, the other does not. This summary outlines the key differences in the two decisions.
Harding (2019)
In Harding v Commissioner of Taxation[1] the Full Federal Court of Australia found in Mr. Harding’s favour, holding he was not an Australian tax resident for the 2011 income year.
Key Points:
Background: Mr. Harding, an Australian citizen, had worked and lived in Saudi Arabia for over 15 years. He returned to Australia in 2006 but moved back to the Middle East in 2009 for work, living in Bahrain and commuting to Saudi Arabia. He continued to own a house in Australia in which his wife and sons resided, as well as an investment property, Australian bank accounts and superannuation.
Residency Tests: Initially, the court found that Mr. Harding was not a resident under the ordinary concepts test but was a resident under the domicile test.
Appeal Decision: On appeal, the Full Federal Court found that Mr. Harding was not a resident under either test. The court emphasised that the "permanent place of abode" should be interpreted more broadly to consider whether a person is living permanently in a particular country or state, rather than focusing on the permanence of a specific dwelling.
Quy (2025)
In Quy and Commissioner of Taxation[2] the Administrative Review Tribunal (ART), on remission from the Federal Court, determined that Mr. Quy, despite spending less than two months per year in Australia, was still considered an Australian resident for tax purposes.
Key Points:
Background: Mr. Quy, an Australian citizen, worked for CBI Constructions Pty Ltd and had lived in Dubai with his family from 1998 to 2009. He returned to Australia in 2009 but moved back to Dubai in 2015 for a new role. He continued to have a house in Australia in which his wife and adult daughters resided.
Residency Tests: On remission, the ART found that he was not a resident according to ordinary concepts. However, despite his physical absence, Mr. Quy maintained significant ties to Australia, such as owning property, having family members living in Australia, and intending to return to Australia after his overseas assignment.
Decision: The ART concluded that Mr. Quy was an Australian resident for tax purposes under the domicile test (but not the ordinary concepts test), as he did not demonstrate a permanent place of abode outside Australia.
Distinguishing the two decisions
The similarity of the fact profile of the two cases was acknowledged by General Member Willis in the ART review of Quy. The difference boiled down to accepting, in Mr Harding’s case, the evidence of his intention to leave Australia indefinitely.
Case law has established that a permanent place of abode overseas can exist only where an individual has abandoned their residence in Australia. The issue was not so much that there was insufficient connection to a residence overseas, but more that Mr Quy appeared to have a stronger continuing connection to a home in Australia.
The areas where the facts diverged in the two cases may be summarised as follows:
Mr Harding had a long history of living and working in the Middle East and could demonstrate that he was not happy with the employment opportunities available at the time in Australia, which were at a significantly lower level of remuneration.
In contrast, Mr Quy had lived and worked in Australia prior to the assignment to Dubai and had a long history of assignments with the same employer in various locations, including within Australia. This seemed to lead to a conclusion that whereas Mr Harding was adamant that he was going to live outside Australia whether his employer supported this or not, Mr Quy was open to the idea of returning to Australia if his employer had required this. This was notwithstanding the fact that his next assignment after the UAE was also overseas, in Thailand.
Mr Harding expected his family to join him at a later date, when it was more suitable in light of his son’s schooling. His son was enrolled at the British school in anticipation of the family joining him and Mr and Mrs Harding looked for family accommodation.
Mr Quy’s daughters were older teenagers/adults attending secondary school or university in Australia, therefore it was the presence of his wife that drew the greatest scrutiny. Unlike previous and latter assignments where she accompanied him, Mrs Quy spent the majority of her time in Australia with her daughters and family. However, it should be emphasised that Mrs Quy’s movements were dramatically constrained in 2020 by Covid-related border restrictions.
Mr Harding left minimal personal belongings behind in Australia and sold assets such as his car and boat.
Mr Quy retained several cars and many belongings in Australia.
Mr Harding’s marriage broke down when he refused to return to Australia and his wife refused to relocate. He then entered relationships based overseas including a later marriage and his wife did then reside with him overseas.
Mr Quy’s wife joined him for his subsequent overseas assignment but did not spend sufficient time in Dubai to be regarded as residing there.
Where to now
It is far from uncommon for decisions in residency cases to be reversed several times. Harding was a Full Federal Court decision that reversed the earlier decision of the single judge. The Quy ART decision was on remission from the Federal Court (Logan J) who found the initial AAT decision (also in the Commissioner’s favour) made an error of law by considering Quy’s intention i.e. whether he effectively planned to abandon Australia, in the context of the ordinary concepts test. While it was incorrect to consider this intention in relation to the ordinary concepts test, it is relevant to the domicile test.
It will be interesting to see whether an appeal is pursued. The comments in the previous Federal Court appeal make it clear that the Federal Court is unable to review a finding of fact by the Tribunal. However, an appeal perhaps could be mounted on the grounds that the Commissioner and in turn the ART erred at law in concluding that Mr Quy did not have a permanent place of abode outside Australia. This was also the basis for Mr Harding’s appeal, but in that instance, focused on the specific issue around whether a permanent place of abode needed to be a specific residence as opposed to a town or location within a country.
How would the proposed new bright line tests apply?
Under the proposed statutory residence tests put forward by the Board of Taxation, Mr Quy would have remained a resident, for the following reasons:
His assignment was for a period of two years. To qualify for the “overseas employment rule”, it would need to be for more than two years.
Having lived in Australia for three or more consecutive years prior to the assignment, and being ineligible for the overseas employment rule, he would need to have spent less than 45 days in Australia in the income year in question and each of the preceding two income years.
These rules remain at the stage of consultation and following the ATO’s finalisation of Taxation Ruling TR 2023/1 elaborating on some of the more confusing aspects of the existing residency tests, it is unclear whether these proposed rules will eventually be implemented.
It remains evident that an examination of residency is complex and nuanced, and a comprehensive understanding of the individual’s facts, and the legislative and case law history, is crucial to reaching the right conclusions.
[1] [2019] FCAFC 29
[2] [2025] ARTA 174 (28 February 2025)