Did the tax residency rules just become even more complicated?

Tax residency is an issue that comes up repeatedly, and every case seems to reinforce one key principle – every case is different. So past cases can help us understand the requirements, but there is risk in treating them as if they are a binding precedent.

The recent case of Abotomey v FCT [2025] ARTA 719 illustrates this very clearly. It concerned an individual’s tax residency for FY2014 and FY2015. Broadly, Mr Abotomey is an Australian citizen who was a director and the CEO of an ASX-listed company (OnCard). The company’s business interests in China were significant, and so he had lived in China since 2009 to oversee these, utilising business cards and visas available to him to live there. He also obtained a China Resident Identity Card. He was remunerated for most of the relevant time via OnCard paying his fees to a company incorporated in Hong Kong. Further, he lived in an apartment in China which was provided to him by OnCard. His wife and children remained living in Australia in a home they had initially jointly owned, but which she became the sole owner of in 2010. Mr Abotomey’s role meant that he regularly came to Australia for work, during which time he often saw and stayed with his family. On these visits he brought clothing with him, as he had removed his possessions from that property in 2009. From 2009 to 2015 he did not own a car and had removed himself from the Australian electoral roll.

From 2011 OnCard decided to explore selling its Chinese business interests. Initially there was some discussion that Mr Abotomey might stay with the business should it be sold, but by the end of 2013 it appears that this would not occur. In May 2014 the contract between OnCard and Mr Abotomey was replaced. In the new contract it was agreed that his services provided included assisting in selling the Chinese business interests. His position as director and CEO ended at that same time. The business was sold in late 2014, with it settling in early 2015. Mr Abotomey was advised in late 2014 that his service contract might conclude in January 2015, which was confirmed in January and is what occurred. He left China on 1 February 2015, bringing the possessions he wished to keep to Australia with him.

Relevantly, Mr Abotomey spent 252 days outside Australia (and thus 113 days in Australia) in FY2014. For FY2015 he spent 153 days outside Australia (so 212 days in Australia, including 123 days after Mr Abotomey accepted he had taken up Australian tax residency in FY2015).

Across both years he had Australian private health cover, joint bank accounts with his wife and access to a post office box here. As noted, there was also the family home available to him in Australia.

Based upon his tax agent’s advice, Mr Abotomey lodged his 2014 return on the basis he was a non-resident, and his 2015 return on the basis he became an Australian tax resident when he returned to Australian in February 2015.

The ATO commenced a review in August 2016. Over time this expanded into an audit and also was extended to cover all years from FY2010 onwards (i.e., the entire time Mr Abotomey lived in China) on the basis that lodging the prior year returns as a non-resident amounted to evasion.  The ATO assessed Mr Abotomey on all earnings derived from FY2010 to FY2015, and held to that decision in an objection decision issued in October 2021.  The basis for the ATO position appears to be:

• Mr Abotomey was a resident according to ordinary concepts as well as under the domicile test; and
• The income was Australian sourced because it originated in services provided to OnCard and so was ultimately paid by an Australian resident company.

Penalties and interest were also applied.

Mr Abotomey appealed the objection to the Tribunal.

During the time before the ART hearing the ATO withdrew from its position that there had been evasion which meant that the amended assessments for FY2013 and earlier years were reversed back to their original amounts. However, the ATO expanded its residency argument by making the 183 day test relevant for FY2015.

ART’s decision – 2014 year

The ART concluded that Mr Abotomey was a non-resident in 2014 under the ordinary concepts test. Factual matters such as (i) removal of personal belongings from Australia, (ii) no ownership of property or a car in Australia and (iii) removal from the electoral roll were seen as significant. Remaining on joint bank accounts and private health cover (part of the family’s cover) were not determinative; nor was the fact that he didn’t cancel his local driving license (it did not require renewal across the relevant years).

On the domicile test, as Mr Abotomey had a place of abode in both countries, the question was whether the abode in China was a permanent place of abode in FY2014. The apartment was provided to him by OnCard for his use from May 2007 until February 2015 and was used by him, visiting family members and invited guests. He had a Chinese driver’s licence and access to OnCard company vehicles. From this, the ART was satisfied that Mr Abotomey had a permanent place of abode in China.

Accordingly, Mr Abotomey was not a tax resident of Australia for FY2014.

ART’s decision – 2015 year

The physical characteristics of Mr Abotomey’s situation began to change in FY2015. He became aware around June 2014 that his involvement with OnCard would come to an end once the business was sold. His consultancy agreement changed in May 2014 to an agreement reflective of the transitory role required for the sale of OnCard’s business. Further, OnCard gave the landlord notice that the apartment lease would end in February 2015. Without the contract with OnCard, Mr Abotomey could not continue to live in China. His citizenship meant that the only country he could legally reside was Australia. From this the ART found that Mr Abotomey had formed an intention around June 2014 to return to Australia.

The ART placed sufficient weight on the impending change to decide that the change of tax residency occurred at the start of FY2015, and not in February 2015 when Mr Abotomey actually ceased living in China and began to live in Australia. It decided this under both the ordinarily resides test and the domicile test, holding that once Mr Abotomey knew he was going to cease living in the apartment he ceased to have a permanent place of abode in China.

The 183 day test has an exclusion for individuals who have a usual place of abode outside Australia and that the person does not intend to take up residence in Australia. Based on the above conclusions, the Tribunal was not satisfied that there was still a usual place of abode outside Australia, and did not consider the intention of Mr Abotomey. It seems likely to us that if it had done so it would have concluded that his intention was to take up residence in Australia.

Key implications of the decision

The analysis done by the ART in relation to FY2015 differs from what we have seen in other cases.  Whilst ART cases aren’t generally a precedent relied on in later decisions, it is worth mentioning these.

The general approach to residency changes is that they occur when an individual physically changes where they live. This case turned on the intention to change countries of residency. Determining when an intention is formed and using that as a basis for a change in residency is an inexact science and will be much harder to accurately determine, and exposes taxpayers and tax agents to greater risk of adjustments and penalties. We are concerned that an intention to change where one resides was seen as being the same as the actual change itself.

However, this risk appears to only arise for situations where an individual is taking up Australian tax residency. An individual planning to leave won’t usually have a place of abode available to them to cause them to not be a resident here under the domicile or the 183 day tests.

More unusually, we wonder if the decision opens up a possibility that an individual who intends to live in Australia but does not actually do so could become an Australian tax resident. In the above case, if Mr Abotomey started looking for a new job in say December 2014 (whether in China or somewhere else outside Australia) and found one relatively quickly then would the ART have still found him to be an Australian resident based on an intention and the expectation that from July to November 2014 Australia was the only place he could legally live in? In that situation he may have moved some possessions to Australia, but not actually moved to or lived here, but from June 2014 until November 2014 his situation would have been unchanged from the facts which led the ART to decide he became a tax resident here on 1 July 2014.

It seems this decision raises more questions than it solves.

Other matters

Whilst they are not considered in this article, the case considered other issues as well (primarily relating to CFCs, the tax treatment of loans made, period of review issues and also penalties). Many of the technical issues were first raised in a substantive fashion in the ART proceedings, which illustrates how hard tax disputes can be to manage when the ATO continues to search for and raise new issues years after the audit and objection process has concluded. Sadly, questions of whether these are the actions of a model litigant under the Taxpayers Charter are for another day.

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