The High Court has ruled former Family First senator Bob Day was ineligible to have been elected.
Mr Day formally resigned as a senator for South Australia on November 1 last year to deal with the collapse of his Home Australia group of companies.
However, six days later the Senate referred his eligibility for election to the High Court on the grounds he may have benefited from the commonwealth through a lease arrangement relating to his Adelaide electoral office.
Under section 44 of the constitution, a member or senator can be disqualified where there is "any direct or indirect pecuniary interest in any agreement with the public service of the commonwealth".
The court decided on Wednesday Mr Day was incapable of sitting as a senator under Section 44 and the vacancy should be filled by a "special count of the ballot papers".
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A single judge will make further directions and orders in relation to the count.
Shadow attorney-general Mark Dreyfus said the government was to blame for the mess.
"The very deal that the Turnbull government did with Mr Day to keep him onside, is the very thing that rendered him ineligible," Mr Dreyfus said.
"The government was told this arrangement was improper as early as February 2014, when the Department of Finance warned then Special Minister of State Michael Ronaldson."
The department said at the time it had "concerns about how such a transaction might be perceived".
Finance Minister Mathias Cormann was alerted to the situation in December 2015, but he did nothing, Mr Dreyfus said.
"Malcolm Turnbull turned a blind eye to doubts about Bob Day's eligibility to be a senator because he wanted Mr Day's vote to get his regressive legislation through the Senate."
