The fine line in residency: Contrasting the decisions in Harding and Quy - UPDATED
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, reflecting the outcome of the appeal to the Federal Court in 2026 which upheld the Tribunal’s conclusion. The crux of the decision is that the taxpayer in Quy did not establish to the satisfaction of the Tribunal (standing in the shoes of the Commissioner), that he had abandoned residence in Australia, and this was a necessary element to conclude that he had established a permanent place of abode in another country.
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 and 2026)
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. On appeal in 2026, the Federal Court upheld the Tribunal’s decision.
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. 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 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 adults and in 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 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 including a later marriage and his wife did then reside with him overseas.
Mr Quy’s wife joined him for his subsequent overseas assignment.
It is important to highlight that 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 do so under the ordinary concepts test, it is relevant to the domicile test.
Federal Court Appeal (2026)
Horan J[3] upheld the decision of the ART, declining to find that there was any “misapprehension, mistake, misconception, unreasonableness or miscarriage of judgment” that would authorise the Court to interfere and set aside its conclusion. It was for the Tribunal to evaluate and weigh the factual matters addressed and the conclusion drawn was open to it.
The main point of contention was whether abandonment of residence was required to enable the establishment of a permanent place of abode elsewhere. The concept of “abandonment” was alluded to in the key precedents, the Applegate[4] and Harding cases, and drew on the extrinsic materials to the amending legislation that introduced the statutory definition.
Horan J. did not attempt to conclude on whether Mr Quy had a permanent place of abode outside Australia. He agreed that it was relevant for the Tribunal to consider whether Mr Quy had abandoned residence in Australia for the purpose of assessing whether his place of abode in Dubai was permanent. Accordingly, this did not represent an error of law on which an appeal could be raised.
How would the proposed new bright line tests apply?
Under the proposed statutory residence tests, 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 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.
[1] [2019] FCAFC 29
[2] [2025] ARTA 174 (28 February 2025)
[3]Quy v Commissioner of Taxation [2026] FCA 1316
[4]Federal Commissioner of Taxation v Applegate (1979) 38 FLR 1