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EXECUTORS OF THE ESTATE OF SUBRAHMANYAM v FC of T

Members:
BH Burns DP
DJ Trowse M

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2001] AATA 405

Decision date: Adelaide, 14 May 2001

BH Burns (Deputy President) and DJ Trowse (Member)

This is an application by the executors of the Estate of the late Santha Subrahmanyam (the applicant) for the review of the decision of the Commissioner of Taxation (the respondent) to disallow objections dated 4 May 2000 against a private binding ruling dated 24 February 2000 in respect of the years ended 30 June 1995, 1996, 1997 to 1998. Central to this matter is the question of whether the late Ms Subrahmanyam (the deceased) was, for tax purposes, a resident of Australia during all or part of the period 7 September 1994, being the date of her arrival in this country, to 17 June 1998, being the date of her death. In the event of the deceased being a resident, it was accepted that significant amounts of interest received by the deceased and derived from within Australia during the years mentioned would constitute assessable income in terms of s 25(1)(a) of the Income Tax Assessment Act 1936 (the Act) for the years ended 30 June 1995, 1996 and 1997 and s 6-5(2) of the Income Tax Assessment Act 1997 for the year ended 30 June 1998.

2. The applicant was represented by Ms A MacDonald of counsel and the respondent by one of his officers. The Tribunal had before it a copy of the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, together with 11 exhibits, 7 by the applicant and 4 by the respondent. Notwithstanding the presentation of the aforesaid documentation, it immediately became apparent that the parties held widely diverse views as to what material could be used in determining the factual background in this matter and that such diversity had its origin in

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what some would describe as the unusual features pertaining to the Private Ruling System as set out in Part IVAA of the Taxation Administration Act 1953.

3. The legislative framework of the Private Ruling System was considered in detail by Lockhart J in
FC of T v McMahon & Anor 97 ATC 4986 and the following observations made by him at p 4988 and onward are relevant to the matter in dispute:

``... A person may apply to the Commissioner for a ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to the person in respect of a year of income in relation to `an arrangement': s 14ZAF. An `arrangement' for the purposes of Part IVAA is defined as including:

  • ``(a) scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or
  • (b) part of an arrangement;'' (s 14ZAAA and s 14ZAA(2))

...

An application for a private ruling must be made in a form approved by the Commissioner and give such information, and be accompanied by such documents, relating to the ruling as the Commissioner requires (s 14ZAJ).

...

If the Commissioner considers that a private ruling cannot be made without further information and, if that information were given, there would be no reason for the Commissioner not to comply with the application for the ruling, the Commissioner must request the applicant to give that information to the Commissioner (s 14ZAM).

...

The Commissioner makes a private ruling by preparing a written notice of it and serving the notice on the applicant (s 14ZAR(1)).

A notice of a private ruling must set out the matter ruled on and, in doing so, identify the person, tax law, year of income and arrangement to which the ruling relates (s 14ZAS(1)).''

4. At p 4990 and under the heading of Conclusions, the learned Judge made the following comments which are apposite to the matter now in contention:

``... The arrangement is but a complex of assumed or identified facts....

...

When making a private ruling the Commissioner does not make findings of fact. He simply identifies facts and then states his opinion about the way in which the relevant tax laws apply to the applicant in relation to those identified facts.

...

If a taxpayer seeks a review of the private ruling before the Tribunal, the subject matter of that review is the arrangement as identified by the Commissioner in his private ruling. That arrangement is constant throughout the process of the private ruling and any review or appellate process that ensues. The Tribunal may form its opinion as to how the tax law operated or would operate on the facts that constitute the arrangement; and it may disagree with the Commissioner and alter the objection decision.''

5. In the Notice of Private Ruling issued by the respondent in these references, the respondent identified the arrangement as that set out in letters written to the respondent by the solicitors acting for the applicant and which were dated 16 August 1999, 7 January 2000 and 8 February 2000. This labelling made no mention of the numerous attachments affixed to those letters and which formed part of the information being supplied in respect of the request for ruling. According to the applicant's representative, the form of nomination used by the respondent further restricted the data before the Tribunal and upon which the respondent had made his ruling that the deceased had been a resident of Australia during the relevant period. In the course of the hearing, the initial submission that all attachments should be excluded from the Tribunal's consideration was the subject of significant modification. It is the Tribunal's understanding that the applicant's final position on this issue was that all attachments not referred to in the three letters should be excluded. An approach of that kind is not surprising when one has regard to the following pronouncement offered by Hill,

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Sundberg and Goldberg JJ in
Bellinz Pty Limited & Ors v FC of T 98 ATC 4634 at p 4639:

``... The Court can have regard only to the arrangement as described in the ruling itself, supplemented by any documentation referred to in it.''

6. After close examination, the Tribunal finds that the only attachment not referred to in the identified letters is a letter authorising the legal firm to act on behalf of the trustees of the estate which is located at folio 28 of the T documents. In any event, the Tribunal is of the view that the attachments form an integral part of the three letters nominated by the respondent in his ruling and that, as such, a reference to that correspondence is of sufficient breadth to encompass the attachments. Flowing from this outcome, which notably introduces some inconsistency into the topic of intention to reside, is the applicant's further submission that the Private Ruling System has no application to situations where inconsistencies of this kind exist. It was claimed that, in such circumstances, the Tribunal would be called upon to make findings of fact which it is not permitted to do.

7. The Tribunal is not persuaded that the restrictions suggested on behalf of the applicant should impinge upon the ruling system. It is the Tribunal's opinion that the coexistence of facts that point in different directions does not necessarily disqualify the subject matter from the system. In this position, the respondent and this Tribunal is required to make an assessment as to whether or not, in all the circumstances nominated, the deceased should be regarded as being a resident of Australia during the period previously stated. To act in this manner is not, in our view, a ``redefinition of the arrangement'' as that term was understood in McMahon (supra).

8. The Tribunal moves to a recording of the relevant facts which have as their source the letters dated 16 August 1999, 7 January 2000 and 8 February 2000 together with the attachments thereto.

9. The deceased, who was a medical practitioner in Singapore until her retirement in August 1994, was a citizen of Singapore. She was born in that country in December 1930. Although never married, the deceased had an extensive family including brothers and sisters and their families who lived in Singapore, Malaysia, the United Kingdom and Australia.

10. For some time prior to her retirement, the deceased suffered ill-health principally related to a renal condition. The existence of that malady had impaired upon the deceased's ability to practise medicine to such an extent that she found it necessary to borrow funds from her bankers to pay for living expenses. Those borrowings were secured by way of a first mortgage over the deceased's home in Singapore. It was the ongoing nature of the medical condition that brought about the deceased's retirement in August 1994 when she was aged 64 years.

11. On 7 September 1994, the deceased arrived in Australia on a three month tourist visa and stayed at the home of her married brother, Dr Iswaran, who resides in Adelaide. According to statements made by Dr Iswaran, his sister believed that better medical treatment for her condition was available in Adelaide than Singapore and it was for that reason only that she had entered Australia, and that upon a stabilisation of the ailment she would return to Singapore and recommence her medical practice. Within a time frame of twelve days of her arrival, the deceased had consulted with a general practitioner and a specialist doctor located at the Renal Unit, Royal Adelaide Hospital. The care administered by the specialist was ongoing throughout the period under review and included daily dialysis treatment on and from 13 September 1997.

12. As to the deceased's intention in coming to Australia, it is of further interest to observe that the treating general practitioner has provided a certification that, to the best of his knowledge and recollection, the deceased gave to him an understanding that she was in Australia for the express purpose of receiving medical attention.

13. For financial reasons, the deceased decided in early October 1994 to sell her home in Singapore. The need to reduce the bank overdraft facility and the provision of funds for living and medical expenses precipitated that decision. An option to purchase the property was exercised by the ultimate purchaser on 14 October 1994 with settlement taking place on 6 January 1995. After deducting the mortgage debt and costs, there remained a balance of $A3.65 million which, in order to fund current living and medical expenses, was transmitted to

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an Australian bank account in the name of the deceased. It is the interest yielded from those funds, the amounts of which are shown below, that the respondent seeks to tax at rates applicable to residents of Australia: 
1995        $560
1996    $383,802
1997    $300,384
1998    $236,405

Noticeably, the bank had deducted in terms of Division 11A of the Act withholding tax of 10% from the amounts of interest payable to the deceased and that those retentions had been forwarded to the respondent.

14. The deceased undertook several overseas trips during her stay in Australia. Because of her weakened condition, the deceased was accompanied by either her brother or his wife. In total, there were eight such journeys all of which were for relatively short periods of time. With the exception of a trip to South India, where the deceased went on a pilgrimage and attended the birthday celebrations of her chosen spiritual leader, all other trips were to either Singapore or Kuala Lumpur where she had friends and relations. On each of her initial four overseas trips, the deceased visited friends and relations, attended family functions and, when in Singapore, contacted associates of her former medical clinic and real estate agents regarding the possible acquisition of a unit for her occupancy upon returning from Australia. On return from these initial four trips her restricted tourist visa was renewed. Additional reasons for the first visit to Singapore in November 1994 included the closing up of the deceased's home and, because of that action, the sending back of her maid to Sri Lanka, the storing of household furniture and effects and the handing over of her dog to a carer. Likewise, a trip made in August 1996 included the further purpose of the disposal of household furniture and effects to charities and the Hindu temple.

15. During the relevant period, the deceased maintained her medical registration with the Singapore Medical Council and her membership of the Singapore Medical Association. Furthermore, and in anticipation of her return to medical practice, she read medical journals regularly and had videos sent from the United Kingdom in order to keep abreast with changes affecting her profession.

16. When visiting Singapore, the deceased stayed at the home of an uncle located at 149 Thomson Ridge, Singapore. On 1 June 1997, the deceased lodged with the Republic of Singapore a report of change of address wherein she indicated her new address as being 149 Thomson Ridge, Singapore. Also, the deceased had made arrangements for correspondence relating to her medical registration, her membership of the medical association, shares held by her in various companies and her Singapore identity card to be forwarded to that same address.

17. Following upon her return from overseas on 17 July 1995 and the receipt of information from an officer of the Immigration Department that she would not be allowed to re-enter Australia during the next twelve months on a tourist visa, the deceased lodged, on 2 August 1995, an application for a temporary retirement visa. In the letter of enclosure to the Department of Immigration and Ethnic Affairs, the deceased made the following statements:

``Having spent several months since 7th September 1995 in Adelaide, of periods less than 3 months on each occasion, I am convinced that I would like to retire in Adelaide.

...

In Singapore I ran a busy Medical Practice close to the city centre, and lived alone (except with my late mother, who passed away in September 1993). Since retiring as a Physician in August 1994, it has been my desire also to enjoy my retirement and to be away from my patients. Hence my visits to Adelaide to assess it for my retirement.

...

Living in Adelaide are also my late brother's (...) wife and 2 daughters.... I have also always had this wish to spend my retirement with my late brother's children.

...

In Adelaide, I am most comfortable, relaxed and enjoy the hospitality and company of my brother, his family, also my sister-in- law, nieces and our friends.''

18. At the time of making the application for the temporary retirement visa, the deceased was receiving treatment for her medical condition at the Royal Adelaide Hospital. If she had not applied and ultimately been successful with her

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application, the deceased would not have been permitted to return to Australia and the Royal Adelaide Hospital where she required further treatment. Notwithstanding the serious nature of the medical condition then being experienced by the deceased, her answer to the application form question ``has the applicant ever had, or currently have, tuberculosis or any other serious disease, condition or disability'' was ``No''.

19. In a further application to the Department of Immigration, this time asking for a review of the decision refusing her earlier request, the deceased, inter alia, repeated her preference to be with relatives and friends in Adelaide. Correspondence from the specialist doctor at the Royal Adelaide Hospital which is dated 19 February 1996 indicates that he was ``trying to help her obtain a temporary retirement visa which would facilitate her stay in Australia.'' The matter was concluded on 26 June 1996 when the deceased was granted a four year temporary retirement visa.

20. While in Australia, the deceased lived with her brother at his matrimonial home. The assistance rendered by the brother extended to the nightly action of helping his sister with the attachment to the dialysis machine. As previously stated, the deceased, when travelling abroad, was accompanied by her brother or his wife because of her infirm condition. It was that same condition that prevented the deceased from engaging in a normal social life in Australia. However, she did manage to keep close and frequent telephone acquaintance with her intimate contacts in Singapore. Additionally, the deceased corresponded regularly with her maid of over ten years' employment with the intention of regaining her services when she returned from Australia. When forwarding a wage cheque to the maid in Sri Lanka for the period to December 1994, the brother, acting on his sister's behalf, commented that ``Dr Santha is currently with me in Adelaide on a short holiday.''

21. In the Tribunal's view the above represents an extraction of the identified facts constituting the arrangement. As stated in McMahon (supra) the task of the Tribunal ``is to `go over again' the objection decision to consider what it thinks should be the proper answer to the question about the way in which the relevant tax law operated on the identified facts constituting the arrangement.'' The Tribunal now turns to that task.

22. Section 6(1) of the Act defines a resident or resident of Australia in the following terms:

``(a) a person, other than a company, who resides in Australia and includes a person:

  • (i) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;
  • (ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or
  • (iii)...''

23. The task of the Tribunal is of course to determine whether or not in the subject years or any of them the deceased did reside in Australia for the purposes of s 6(1).

24. The first matter for consideration is whether a person ``resides in Australia''. If so, there is no need to contemplate the provisions of paras (i), (ii) and (iii) which extend the meaning of ``resident'' to individuals who may not reside in Australia. The Tribunal is mindful that the liability to tax arises annually and thus the need to address the question of residency on a yearly basis and for present purposes that relates to the years ending 30 June 1995, 1996, 1997 and 1998.

25. The word ``reside'' has a very wide meaning, see
FC of T v Miller (1946) 8 ATD 146; (1946) 73 CLR 93. It is defined in the Oxford English Dictionary as meaning ``to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place.'' It is the Tribunal's view that in determining the question of residency one must have regard to the particular circumstances of the case and for present purposes that means the identifiable facts relevant to the question of whether or not the deceased can be said to have resided in Australia in one or more of the subject years. The respondent, in Taxation Ruling TR 98/17, has provided the following helpful indicia on the subject of the ordinary meaning of ``reside'':

``18. The period of physical presence or length of time in Australia is not, by itself, decisive when determining whether an individual resides here. However, an

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individual's behaviour over the time spent in Australia may reflect a degree of continuity, routine or habit that is consistent with residing here.

Behaviour while in Australia

19. The quality and character of an individual's behaviour while in Australia assist in determining whether the individual resides here.

20. All the facts and circumstances that describe an individual's behaviour in Australia are relevant. In particular, the following factors are useful in describing the quality and character of an individual's behaviour:

  • • intention or purpose of presence;
  • • family and business/employment ties;
  • • maintenance and location of assets; and
  • • social and living arrangements.

21. No single factor is necessarily decisive and many are interrelated. The weight given to each factor varies depending on individual circumstances.''

26. The Tribunal accepts that the factors nominated by the respondent have their origins in decisions of the courts and that they provide a useful guide as to what may be relevant considerations. These guidelines clearly support the Tribunal's view that it is imperative to have regard to the particular (and identified) facts of the case.

27. The Tribunal offers the following comments on the relationship of the deceased's circumstances to the factors suggested by the respondent in his ruling:

  • (1) The circumstances outlined in relation to the deceased's medical condition and need of hospital treatment point to her presence in Australia being for the prime purpose of receiving attention for that condition.
  • (2) Although the period in Australia extended over a duration of forty five months, it was inextricably linked to the deceased's medical condition and the treatment thereof.
  • (3) Similarly, but subject to the proviso that the worsening of the sickness dimmed her expectations, the identified facts indicate that the deceased at all times intended to return to Singapore and her former life.
  • (4) The deceased had no business or employment ties in Australia. Throughout her stay in this country, the deceased lived with her brother and family while undergoing medical treatment. Although she had little, if any, social life in Australia, the deceased constantly communicated with her intimate contacts in Singapore. Dialogue was also maintained with her sharebroker in Singapore and personnel associated with the medical clinic of which she was formerly a member. The deceased also kept current her Singaporean medical registration.
  • (5) With the exception of a few personal items and the house proceeds, all other possessions and assets remained either in Singapore or Malaysia.

28. The Tribunal has had regard to the deceased's overall behavioural pattern as demonstrated within the identified facts during the period 7 September 1994 to 17 June 1998 and concludes that it does not reflect the quality or character that is consistent with the meaning which the Tribunal attributes to the words ``resides in Australia'' for the purposes of s 6(1)(a) of the Act.

29. The Tribunal is mindful that the s 6(1)(a) definition includes other situations ie, paragraphs (i) and (ii) which may be relevant for present purposes and the Tribunal now turns to a consideration of the inclusive paragraphs (i) and (ii).

30. The statutory test of ``resides'' as contained in s 6(1)(a)(i) of the Act is in two stages. The first matter to be determined is a person's domicile. A positive finding that a person's domicile is in Australia leads to the further question of whether the Commissioner should be satisfied that the person's permanent place of abode is outside Australia. If the Commissioner is not so satisfied, the person will be a resident of Australia under this test.

31. In looking at the issue of ``domicile'', one should have regard to both the body of common law principles developed by the courts and the provisions of the Domicile Act 1982. The underlying principle is that a person acquires at birth a domicile of origin, being the country of his or her father's permanent home. Furthermore, there is ample authority, see for example
Henderson v Henderson (1965) 1 All ER 179, that a person retains domicile of origin unless and until a domicile of choice in another country is acquired. The common law doctrine

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pertaining to domicile of choice has been modified by s 10 of the Domicile Act 1982 which provides:

``The intention that a person must have in order to acquire a domicile of choice in a country is the intention to make his home indefinitely in that country.''

32. The identified facts do not in the opinion of the Tribunal indicate that the deceased intended at any point in time to make Australia her home indefinitely and thus the view that s 6(1)(a)(i) has no application to her circumstances.

33. Under paragraph (ii) of s 6(1)(a), a person is included as being a resident if he or she has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that he or she does not intend to take up residence in Australia. On the basis of the applicant's concession that the deceased was in Australia for more than one half of all the years under review, it is the exceptions of usual place of abode and intention that require consideration.

34. The meaning of the word ``abode'' was considered by Lord Campbell CJ in
R v Hammond (1852) ER 1477 at p 1480, where he said:

``A man's residence, where he lives with his family and sleeps at night, is always his place of abode in the full sense of that expression.''

35. The term ``place of abode'' was considered by Sheppard J in
Applegate v FC of T 78 ATC 4054 at 4060 who concluded that it ``may mean the house in which a person lives or the country, city or town in which he is for the time being to be found.'' Unfortunately, the Tribunal has not been able to locate any useful discussion on the phrase ``usual place of abode'' in the context of the issue before the Tribunal.

36. Although conceding that the deceased's place of abode was Australia during the relevant period, the applicant's representative submitted that, throughout that same period, the deceased's usual place of abode was Singapore. It was contended that the deceased's lifestyle in Australia had been severely restricted because of her health problems and that, during that time, she had not been living a normal and usual life. The claim was that the lack of quality and character of lifestyle should be recognised when distinguishing between ``abode'' and ``usual place of abode''.

37. The Tribunal is of the view that the nature and quality of the use which a person makes of a particular place of abode is a relevant factor when considering whether that abode qualifies as his or her usual place of abode. To this extent there is some overlap between the elements falling for consideration under the meaning of ``resides'' in s 6(1)(a) as defined by this Tribunal and the inclusive provisions of paragraph (ii) of s 6(1)(a) of the Act.

38. It is the Tribunal's opinion that the deceased's use of her brother's home in Australia was at the bottom end of the quality and character of life scale. Indeed, it seems that, during the whole of the period, the deceased's attendance in Australia approached that of a patient presenting herself for medical treatment. In the final analysis, the Tribunal concludes that the deceased's use of the abode in Australia did not possess the characteristics necessary to classify that abode as her usual place of abode. For this and other reasons stated elsewhere, the Tribunal is satisfied that the deceased's usual place of abode was outside Australia and that she did not intend to take up residence in Australia.

39. The finding of the Tribunal is that the identified facts are not such as to conclude that the deceased was a resident in Australia for the purposes of s 6(1)(a) of the Act at any point in time during the tax years 1995 to 1998 and that, as such, she is a non resident for the purposes of s 25(1) of the Act and s 6-5 of the 1997 Act.

40. For the above reasons, the Tribunal, in accordance with s 43 of the Administrative Appeals Tribunal Act 1975, sets aside the objection decision and in substitution therefor holds that the deceased was not a resident of Australia during the period 7 September 1994 to 17 June 1998.


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