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Commissioner of Taxation v Pike: Tie-breaker test for dual-residents

Commissioner of Taxation v Pike: Tie-breaker test for dual-residents

The Full Federal Court (Court) in Commissioner of Taxation v Pike [2020] FCAFC 158 has dismissed the Commissioner’s appeal, confirming that a taxpayer, initially regarded as a resident for Australian tax purposes, is considered a resident of Thailand for Australian tax purposes pursuant to the tie-breaker test in the Australian and Thailand Double Taxation Treaty (DTA).

The relevant facts of the case include:

  • The taxpayer (Pike), born in Zimbabwe, moved to Australia with his family in 2005.
  • Not able to find work in Australia, from 2006 to 2016 Pike was employed and resided predominantly in Thailand.
  • Pike’s family remained in Australia and Pike would return to Australia for approximately three to four months each year to visit his family.
  • During this time, Pike and his wife jointly rented multiple properties in Australia and purchased furniture and land with intentions to build a home in Australia.
  • At the same time, Pike had rented accommodation in Thailand, secured employment and had social ties in-country.
  • Following his wife and children being granted Australian citizenship in 2010, Pike became an Australian citizen in 2014.

The issue raised was whether Pike was a ‘resident’ for Australian income tax purposes, under section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Upon the finding that Pike was an Australian resident for tax purposes, the issue arose whether Pike may be deemed solely a resident of Thailand under Article 4(3) of the Double Tax Agreement (DTA) between Thailand and Australia.

The Court accepted that Pike should be considered an Australian resident under the ITAA 1936, however it also accepted that in applying the tie-breaker rule under the DTA, Pike should be considered a resident of Thailand. As the DTA overrides the ITAA 1936, this meant Pike should be considered solely a resident of Thailand.


A more detailed explanation of the key concepts considered in this case are as follows: 

Australian residency for tax purposes

The first issue dealt with by the Court was whether Pike was a resident of Australia for tax purposes.

The Court accepted that between 2009-2016, Pike was a resident of Australia for tax purposes under the ordinary concepts test in the ITAA 1936. The Full Court agreed that a critical factor was when Pike returned to Australia, he was not returning as a visitor, rather, he returned to resume residing with his family at his family home. This intention to reside in Australia became especially apparent upon his family obtaining citizenship and the joint purchase of land.


Tie-breaker test for the purposes of the DTA

Both the Commissioner and Pike accepted that Pike was also a resident of Thailand for tax purposes from 2009-2016. This meant the tie-breaker test in Article 4(3) of the DTA would determine which country had income taxing rights.

The Court confirmed that Pike’s rental accommodation, either in Australia or Thailand, was not a ‘permanent home’ but was a ‘habitual abode’ within the meaning of the terms as defined in the ITAA 1936, case law and associated ATO rulings and commentary.

The main point of contention was subsection 4(3)(c) of the DTA, which states that:

“if the person has an habitual abode in both Contracting States, or in neither of them, the person shall be deemed to be a resident solely of the Contracting State with which the person’s personal and economic relations are the closer.”

The primary judge considered the fact that Pike had closer personal relations to Australia, but overwhelmingly closer economic relations in Thailand, and found that, when contemplated as a whole, Pike’s overall personal and economic relations were closer to Thailand than to Australia.

On appeal, the Court affirmed that the test in Article 4(3) of the DTA is a composite one, and the question was whether the taxpayer’s personal and economic relations support ties closer to one country over the other. The Court accepted the primary judge’s findings on this issue that Pike’s overall relations were closer to Thailand than to Australia, and accordingly that Pike should not be considered an Australian tax resident in the relevant income years.


Key Takeaways

This case provides valuable insight into how courts look to apply Australian tax residency rules.

For dual residents, the time spent in each location, although a relevant factor, will not on its own be determinative of whether a person has a ‘habitual abode’ in either place. In this case, the Court identified that during this period, Pike had two distinct facets to his living – one being his career in Thailand, and the other being his family life in Australia.

The Court has also made explicit their interpretation of the third limb in the tie-breaker provision – requiring the judge take a collective view of the taxpayer’s personal and economic relations, in light of the specific elements of the case.

The residency rules are deeply complex, and always factually driven. In a number of recent decisions, the Commissioner’s position has been overturned by the Courts. Whilst this is a welcome outcome for the taxpayers involved, it highlights the difficulty for individuals in securing certainty on their residency position, where the taxation implications from getting it ‘wrong’ can be significant.

The Board of Taxation has recognised this, and in a 2019 report stated ‘the current individual tax residency rules are no longer appropriate and require modernisation and simplification’. We hope the Government takes these recommendations on board, as it has done with corporate residency rules.


Co-written by Maddy Ransley.

The information contained in this blog is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. In all cases, you should consult with a professional advisor familiar with your factual situation for advice concerning specific matters before making any decisions. By reading this blog, you confirm your understanding of this disclaimer.

Steven Cantrill
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