SULLY v FC of T

Members:
BJ McCabe SM

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2012] AATA 582

Decision date: 31 August 2012

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Bernard J McCabe (Senior Member)

1. Does the taxpayer still call Australia home? The taxpayer claims he did not - not in the year of income ending 30 June 2009, at any rate. He was working overseas for a company based in Dubai at the time. He says the income he earned from his employment there should not be taxable in Australia. The Commissioner of Taxation disagrees. The Commissioner says the taxpayer was an Australian resident within the meaning of s 6(1) of the Income Tax Assessment Act 1936 (ITAA36). The dispute has now found its way to the Tribunal.

BACKGROUND TO THE DISPUTE

2. The taxpayer is a marine engineer. He is also an Australian citizen, and he lived most of his life in this country. His parents reside in Gladstone. Between 2005 and 2007, he resided in Cairns with his girlfriend in a house he acquired in 2005. In July 2007, he decided to leave Australia and commence working on ocean-going vessels based in other parts of the world. He said in his statement (exhibit 3) that he had always wanted to work in the marine sector and he liked the idea of international travel. He accepted a reduction in pay when he made the move out of the mining industry, where he had previously been working. He left his girlfriend behind in the house in Cairns. She paid rent of $100 a week, which was clearly below market rates although it was pointed out in the taxpayer's oral evidence that she also attended to gardening and looked after other matters that reduced the amount of the subsidy he was effectively providing. He left his motorbike, a few items of furniture, some clothes and some household effects in storage at his uncle's property.

3. The taxpayer's first destination in July 2007 was Chile. He worked on a yacht. He came back to Australia after a short time so he could apply for a visa to enter the United States. After he obtained the proper visa, he left Australia in September 2007 for a new job in Mexico. He worked there for a while before returning to Australia temporarily to find another job overseas. In April 2008, he took up a position with a company in Dubai. The individual behind the company was a senior government official. The company operated a yacht. The taxpayer's employment agreement was exhibited to his affidavit. It is very short. It includes a clause stating: "Location of employment subject to Owners demands". As the taxpayer explained it, the arrangement meant the taxpayer might be sent to work on a variety of vessels in locations all around the world.

4. As part of his arrangement with his employer, the taxpayer was provided with accommodation. He shared a two-bedroom apartment with another employee of the same company. The taxpayer said in his oral evidence that the captain of the vessel decided who would live with whom. The apartment was partly furnished; the taxpayer and his flat-mate acquired linen, some white goods and some other household items. Each flat-mate had his own room, which was lockable, and no one else used the property during the taxpayer's absences. The taxpayer says he lived at this address from the time he commenced work in 2008 until July 2010.

5. Individuals who live and work in the United Arab Emirates require an appropriate visa. The applicant did not have a proper visa that entitled him to work. He said it was the employer's responsibility to obtain the appropriate visa, as the employer was the sponsor. In fact, the employer did not obtain a proper visa for the taxpayer until February 2010. The fact he did not have a work permit meant he could not open a cheque account at a Dubai bank. He says as a consequence his salary was paid into his Australian Commonwealth bank account, and he used an Australian credit card for purchases.

6. I should say something more at this point about the taxpayer's B1-B2 visa to enter the United States that was provided in September 2007. The visa lasted for five years. It was intended for foreign nationals who wanted to enter the United States for work purposes. I was provided with a copy of the material on the website of the US embassy that talked about the eligibility criteria for this class of visa. The material makes it plain that an applicant must be able to establish he or she resides in another country and does not intend living in the United States. The taxpayer told the American immigration authorities at the time of his application that he did reside in another country: Australia. The taxpayer said in his oral evidence that he never formally alerted the American authorities he no longer resided in Australia, although he said he gave his Dubai address as his place of residence on later trips to the United States during the period in question.

7. During the year of income, the taxpayer spent relatively little time in his Dubai apartment. The respondent estimated he may have been there for as little as 19 days during the period in question. I do not understand there was a serious challenge to that estimate. Most of the taxpayer's time was spent overseas. Some time was spent on board the company's vessel at various locations around the globe. In September 2008, he took on a managerial role within the company that saw him posted to New Orleans. He took an apartment in that city soon after he arrived. He kept the apartment until November 2009. He also kept the room in the Dubai apartment at the same time, and he returned there on several occasions. He made a number of trips during the period to other places around the world in connection with his employment while he had the apartment in New Orleans. He returned to Dubai to live in January 2010 after he moved out of the New Orleans apartment.

8. The taxpayer travelled to Australia for a family event in July 2008. He saw his girlfriend who continued to live in the house in Cairns on this visit. She visited him in New Orleans in January 2009. The next time he saw her was on his trip to Australia in November 2009, his first trip here since July 2008. The taxpayer delivered the bad news to his girl-friend that their relationship was over. He said he had met someone else. He explained in evidence the relationship had been in trouble for some time - which is hardly surprising, given the length of the separation. Indeed, he suggested the relationship was clearly in poor shape when he left Australia in 2007.

9. The taxpayer's new partner was an American. The taxpayer said in his oral evidence that the relationship became more serious towards the end of 2009 and he anticipated he would move permanently to the United States to be with his partner when his time finished in Dubai. He returned to the United States for a period in 2010 to live with her in New Orleans before returning to Dubai. His time in the United Arab Emirates came to an end when he resigned in July 2010. He returned to the United States before taking a job in Australia.

10. The taxpayer summarised his movements in his statement: Exhibit 3 at 51 as follows:

During that entire period the unit contained many personal items and possessions most of which were locked in my bedroom if I was absent from Dubai. I considered the unit in Dubai to be my permanent home. I made only short visits to Australia during my employment with the company. I did arrange the apartment in New Orleans for the time I stayed in that city to allow me to complete the work for the company, but at all times I considered my permanent residence to be the unit in Dubai.

THE LAW

11. Section 995-1 of the Income Tax Assessment Act 1997 effectively picks up and applies the definitions of "resident" and "resident of Australia" in s 6 of ITAA36. The definition is not especially elaborate. A person will be taken to be a resident within the meaning of that section if he or she:

• (a) is a resident according to the ordinary meaning of that term;
• (b) has a domicile in Australia (unless the Commissioner is satisfied the person's permanent place of abode is outside Australia);
• (c) was present in Australia for at least half of the days in the financial year; or
• (d) was a member of an Australian superannuation fund.

12. There is no suggestion the taxpayer was a member of a superannuation fund during the relevant period. It is also accepted he was not present in Australia for half of the days of the financial year. Only the first two tests are in issue here. I note the taxpayer will fail if he is found to satisfy the requirements of either test.

THE RESIDENCE TEST

13. A person's place of residence is a matter of fact. The factual conclusion is based on an impression I must form from the circumstances. In the words adopted by Wilcox J in
Hafza v Director-General of Social Security (1985) 6 FCR 444 at 449:

The test is whether the person has retained a continuity of association with the place … together with an intention to return to that place and an attitude that that place remains "home"…

14. The Commissioner has identified a number of matters that he suggests indicate the taxpayer was still resident in Australia during the relevant period. These were:

• (a) The applicant owned a house in Cairns at all times throughout the relevant tax year;
• (b) The applicant's "partner" continued residing at the Cairns property when he was overseas;
• (c) Throughout his time overseas, the applicant's motorbike was stored at his uncle's house in Cairns and his remaining possessions were stored in a shed at his own house in Cairns;
• (d) The applicant was not based in any one place during the relevant tax year;
• (e) The applicant's salary was paid in Australian dollars into an Australian bank account with the CBA;
• (f) The applicant paid for expenses on his Cairns property via funds transfers from his CBA bank account;
• (g) Throughout the entire 2009 income tax year, the applicant was only entitled to remain in the United Arab Emirates for 30 days at a time pursuant to the terms of his visa;
• (h) Upon leaving Australia in 2007, the applicant obtained a B1/B2 visa for the United States. A pre-condition to obtaining such a visa required the applicant to confirm that he had a residence abroad which he did not intend to abandon (which must have referred to Australia);
• (i) The applicant visited Australia from 4 - 21 July 2008 for his father's birthday;
• (j) The applicant maintained an ANZ Visa card while he was overseas;
• (k) The applicant's "family ties" are with Australia - his parents are in Gladstone and his uncle is based in Cairns.

15. I am not persuaded these matters, taken together, suggest the taxpayer continued to reside in Australia. They certainly indicate there was some residual association with Australia, but I am not persuaded they evidence an intention to return to Australia or suggest the taxpayer continued to regard Australia as his home. The fact he owned real estate in this country is unremarkable, even if it was his former residence. The fact his girlfriend at the time occupied the property is interesting, but ultimately unpersuasive: the taxpayer's oral evidence suggests to me he had already moved on from that relationship even though it did not formally end until November 2009. The fact she was allowed to stay in the property at reduced rent suggests the taxpayer was comfortable with her stewardship of the property; it does not suggest to me he wanted to retain an ongoing relationship with his girlfriend or this country. He seemed similarly inclined to inaction in relation to the limited range of personal possessions stored at the house or with his uncle.

16. The fact the taxpayer only held a short-term visa for the United Arab Emirates is odd at first glance. It seems passing strange that a person would claim to reside in a country when he held nothing more than a visitor's visa that did not permit him to stay for more than a short period. I accept the taxpayer's explanation that the visa situation was of his employer's making, and that it did not appear to impede his work. Even so, the fact he spent so little time in Dubai and spent a good deal of time in other locations around the world - especially New Orleans - does call into question whether he could be truly said to live in Dubai. But while I doubt the taxpayer resided in Dubai during that period - an issue that has some relevance to the domicile test - I do not think the evidence suggests he necessarily resided in Australia.

17. I acknowledge the taxpayer told US immigration authorities in September 2007 that his place of residence was Australia. I accept he was telling the truth about that at the time. But that was before the year of income in question. The taxpayer says he subsequently told US immigration authorities of his Dubai address when asked about his place of residence. I have no reason to doubt he did that.

18. I also accept the taxpayer continued to have familial relationships in Australia, and that he visited his family in Australia at least once during the year of income in question. The fact he should have continuing familial links is not of itself remarkable: everyone comes from somewhere, after all. But those roots do not necessarily indicate the taxpayer was likely to return to this country.

19. The most difficult evidence for the taxpayer was his continued use of his Australian banking facilities while he worked out of Dubai. His salary was paid into his Australian bank account and he used his Australian credit cards. He even used his Australian credit cards while he was in the United States. The taxpayer has an explanation for that, however. He says he was unable to open an account in Dubai during the relevant period because he did not have the appropriate visa until 2010. He said he had no choice but to continue using his Australian accounts, but that was only because it was convenient to do so, not because he wished to maintain an ongoing relationship with this country. I note he also opened at least one American bank account during this period. I accept the taxpayer's explanation.

20. On balance, I am not persuaded the taxpayer satisfied the residence test in the year of income in question. That leaves only the domicile test.

THE DOMICILE TEST

21. Every person has a domicile of origin. The taxpayer's domicile of origin is Australia. He was born in this country and grew up here. But one might also acquire a domicile of choice elsewhere by demonstrating the intention to make his or her home indefinitely in that country: see s 10 of the Domicile Act 1982. If the taxpayer established he acquired a domicile of choice in the United Arab Emirates (or the United States, for that matter), he would be successful in these proceedings. But he does not need to go that far. It is enough if I can be satisfied he established a permanent place of abode in another country.

22. I accept the taxpayer has manifested an intention to leave Australia behind in the year of income in question. I have already found he did not reside in this country during that period. But has he done enough to establish a permanent place of abode in the United Arab Emirates?

23. The question is difficult because the taxpayer spent a good deal of time during this period in the United States, and comparatively little time in Dubai. He maintained an apartment in New Orleans for a significant period even though he was still working for his Dubai-based employer. I accept he told the US immigration authorities that his place of residence was Australia (in 2007) and Dubai subsequently; that fact alone counts against an intention to settle in the United States during the period in question, although I note the taxpayer met an American woman and gave evidence that he formed the intention (admittedly after the relevant financial year) to settle with her in the United States before changing his mind and coming to Australia.

24. The taxpayer travelled all over the world during the relevant financial year. A lot of the time was spent on board his employer's yacht. He maintained two apartments for much of the period. If the amount of time spent in a place is any indication, the taxpayer had certainly not settled in Dubai. But what of the other evidence?

25. The taxpayer's response to a questionnaire in 2011 provides some insight. The questionnaire, provided by the Commissioner, asks about the taxpayer's permanent place of abode. It is reproduced in exhibit one at p 33. Question three asks:

Domicile

Have you formed an intention to make your home indefinitely outside of Australia? if so:

In which country?

When did you form that intention?

What was the predominant factor in forming that intention, and other significant factors?

26. The question is not expressed elegantly. It might be readily misunderstood. The taxpayer gave evidence that he was assisted by his accountant when he prepared his response. He answered the question as follows:

Yes, on Foreign going Ships, prior to the tax period of 2008-2009, Work/Industry.

27. "Foreign going ships…"? Ocean-going vessels are not countries. But the answer is revealing. I formed the strong impression from the taxpayer's evidence that he did not have a strong attachment to any particular country. He made it clear his priority was to live and work on ocean going vessels: see exhibit three at p 4. His employer may have been based in Dubai, and his personal effects may have been housed for the most part in an apartment paid for and ultimately controlled by his employer in that city. (I note the taxpayer did not even have a say over the identity of his own flat-mate.) But there were few other signs of an attachment to the United Arab Emirates during that period. The taxpayer had not acquired real estate or even taken out a lease. I accept he probably had good reasons for not doing so: his employer provided the accommodation as part of his package, and he was in residence for such a short time. But he did not appear to have any other significant connections with the place. At least in New Orleans he entered into a relationship. There was no opportunity to do that in Dubai.

28. Those conclusions are consistent with the answers the taxpayer gave to the questionnaire in 2011: exhibit one at p 37. When asked whether he would stay in the United Arab Emirates if his employment concluded, he agreed that he would not - although he added he did not intend returning to Australia. In his oral evidence, he suggested he would most likely go to the United States in that event - which is exactly what happened when he did resign, albeit he then changed course and took a job in Australia. I acknowledge this answer was given after the year of income in question. I also acknowledge the law does not require that someone have an intention to remain forever in a particular place before one can be considered to have a permanent place of abode there. One must look to whether at the relevant time the person anticipated staying in the place for the foreseeable future.

29. I am not persuaded the taxpayer established a permanent place of abode in the United Arab Emirates, or anywhere else in particular. I am satisfied he saw himself as a "citizen of the world" who was prepared to go wherever his work took him. He had a connection with Dubai, to be sure, but I am not satisfied it was sufficiently strong to warrant a finding that it had become his permanent place of abode (let alone his domicile of choice) in the relevant financial year.

CONCLUSION

30. The taxpayer satisfied the domicile test in s 6 of ITAA36. That means he was a resident for income tax purposes in the year ending 30 June 2009.

31. The parties told me at the outset of the hearing that the Commissioner made concessions on the amount of tax payable in the event the Tribunal found the taxpayer was an Australian resident. I therefore propose to set aside the decision under review and remit it for reconsideration on the basis that the taxpayer was an Australian resident.