MURRAY v FC of T
Members:PE Hack SC DP
Tribunal:
Administrative Appeals Tribunal, Brisbane (heard in Darwin)
MEDIA NEUTRAL CITATION:
[2013] AATA 780
PE Hack SC (Deputy President)
Introduction
1. An Australian resident is generally liable to pay tax on income from all sources, whether in or out of Australia. The respondent, the Commissioner of Taxation, took the view that the applicant, Mr Dennis Murray, was an Australian resident in each of the 2009, 2010 and 2011 income years. The Commissioner made default assessments of Mr Murray's taxable income and of the tax payable thereon for those years. Additionally, the Commissioner imposed substantial penalties on Mr Murray for failing to lodge returns for the three years.
2. Mr Murray contends in these proceedings that he was not an Australian resident in any of the years and that, accordingly, he was not liable to pay tax. He does not dispute the quantum of the Commissioner's assessments nor does he dispute the level of penalty imposed by the Commissioner. He does not seek remission of the penalty.
3. The only issue to be determined in whether, in any or all of those years, Mr Murray was an Australian resident.
The legislation
4. The general rule, set out in s 6-5(2) of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997) is that,
If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Section 6-10(4) is in similar terms in relation to "statutory income". In contrast, and by operation of ss 6-5(3) and 6-10(5) of the ITAA 1997, a "foreign resident" is assessable only on ordinary and statutory income derived from Australian sources. The term "Australian resident" is defined in s 995-1 of the ITAA 1997 as meaning a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936). A foreign resident is defined as a person who is not an Australian resident for the purposes of that Act.
5. The term "Australian resident", so far as an individual is concerned, is defined in s 6(1) of the ITAA 1936 in this way:
resident or resident of Australia means:
- (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 the person's 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 the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or
- (iii) who is:
- (A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or
- (B) an eligible employee for the purposes of the Superannuation Act 1976; or
- (C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B); …
The issues
6. There is no suggestion that Mr Murray satisfies any part of the definition in sub-paragraph (iii) of paragraph (a). Thus the particular questions that arise are these,
- (a) did Mr Murray reside in Australia in the years in issue i.e. was he a resident according to ordinary concepts;
- (b) if not, was his domicile in Australia;
- (c) if his domicile was in Australia, was his permanent place of abode outside Australia;
- (d) was he actually in Australia for more than half of any of the years of income;
- (e) if he was, was his usual place of abode outside Australia and did he not intend to take up residence in Australia.
Factual background
7. There is little dispute about the underlying facts; the contest is as to the conclusions to be drawn from those facts. Mr Murray was born in 1951. He left school at the age of 15 and worked as a builder's labourer and bricklayer until about 15 years ago when ongoing back problems forced him out of employment of that nature. Since then, he says, he has been receiving social security benefits with short periods of part-time work. In 2005 he was sentenced to a term of imprisonment for drug offences. As a consequence of that offending proceedings were taken against him for the confiscation of his assets under the Criminal Property Forfeiture Act 2002 (NT). He says that on his release from gaol in June 2006 he had no assets. Within a short time after his release he was the subject of further attention by police. He says that he decided that he had no future in Australia; he was then in his mid-50s, unable to work and had no assets. His then wife was of Thai descent so he left Australia in 2006 to live with her and other members of her family in Thailand.
8. Mr Murray's case is that from that time onwards he has not returned to live in Australia.
9. Mr Murray's marriage began to break down in about mid-2007. In the course of his travels he visited Bali and there met, and commenced a relationship, with a local woman. Although the relationship did not last the experience led Mr Murray to decide to live in Bali. He rented a house in a locality called Sanur in early 2008. In about October of that year he commenced a relationship with Ni Ketut Saurdani (Ketut) who is now his wife. She commenced living with Mr Murray in the house at Sanur within a short time after the commencement of the relationship. In early 2009 Mr Murray acquired a sub-lease of the premises that he had earlier rented. He paid Rp 625,000,000 (an amount Mr Murray said was the equivalent of A$62,500) to sub-lease the premises until March 2032. That acquisition is documented.
10. In the meantime Mr Murray had obtained the right to reside in Indonesia as a retired person. Under the visa he was prohibited from employment. The visa was valid for one year and could be renewed annually for five years. After three years Mr Murray is entitled to apply for a permanent stay visa.
11. Mr Murray made a number of trips back to Australia between 2008 and 2010. He returned to Australia on 3 July 2008 and stayed until 24 September 2008, a period of 83 days. He next arrived on 5 December 2008 and stayed for 20 days. Then he returned to Australia on 30 January 2009 (just after the execution of the agreement to sub-lease) and stayed until 25 March 2009, a period of 55 days. He next came back on 28 May 2009 and stayed until 5 August 2009, a period of about 69 days. Thereafter, the pattern of his visits changed markedly and he stayed for much shorter periods of time - for four days in September 2009, seven days in October 2009 and seven days in December 2009. Mr Murray says that on each of these occasions he stayed with friends in Darwin.
12. He next came to Australia, on this occasion accompanied by Ketut, on 10 February 2010. The couple were planning to stay only nine days and had tickets to return on 19 February 2010. On 11 February 2010 Mr Murray was arrested and charged with the possession of a precursor to a dangerous drug. He was released on bail and required, as a condition of that bail, to surrender his passport. Ketut was detained initially but released without charge. She returned to Bali on her release. In June 2010 Mr Murray was convicted and sentenced to 18 months imprisonment. He was released from gaol in mid-December 2011. Shortly after his release the Deputy Commissioner, on behalf of the Commissioner, served a Departure Prohibition Order on him. That order remains in place and has prevented his return to Bali.
13. Mr Murray and Ketut had intended to be married in Indonesia in 2010 but his arrest prevented that from happening and they married in Darwin earlier this year.
The assessment and objection processes
14. Mr Murray's affairs were the subject of an audit in 2011 whilst he was in gaol. The Commissioner, in a manner that does not emerge from the material, came into possession of documents that showed that in the 2009 income year Mr Murray had paid the equivalent of $191,699 towards the cost of building a boat in Indonesia. The Commissioner concluded that Mr Murray had been a resident of Australia during that year, and the subsequent years, and that the sum of $191,699 represented income in Mr Murray's hands. For the 2010 income year the Commissioner had access to bank documents that showed that Mr Murray was receiving regular payments of interest. The Commissioner calculated the amount of principal that was required to earn the interest shown, and treated that sum, $450,000, as unexplained income. Additionally an amount of $297,903 shown in another bank was treated as an earned income in the 2010 year along with $17,439 in interest receipts. In the 2011 income year the Commissioner determined the amount of interest actually earned to January 2011 and estimated the amount that would have been earned thereafter.
15. The result of the Commissioner's audit was that on 12 December 2011 the Commissioner made default assessments pursuant to s 167 of the ITAA 1936 of Mr Murray's taxable income as follows:
| 2009 | $191,699 |
| 2010 | $765,342 |
| 2011 | $ 37,439 |
Penalties in excess of $350,000 were assessed.
16. Mr Murray objected to the assessments, originally by a notice of objection he prepared himself and dated 11 April 2012, and with a further objection dated 8 May 2012 prepared on his behalf by accountants. The objections were disallowed in full by letter dated 27 July 2012. These proceedings, which seek to review the Commissioner's decisions to disallow the objections, were commenced on 6 May 2013.
Consideration
Residence according to ordinary concepts
17. The first question posed by the definition in s 6(1) of the ITAA 1936 is whether Mr Murray was residing in Australia, according to ordinary concepts, in the three years in question. It may be accepted that the word "reside", in this context, has a very wide meaning. The submissions of Mr Parish, the solicitor for Mr Murray, drew attention to the decision of Wilcox J in
Hafza v Director-General of Social Security[1]
- 13. There is a plethora of decisions, arising in various contexts but predominantly matrimonial causes and revenue cases, relating to the legal concept of residence. As a general concept residence includes two elements: physical presence in a particular place and the intention to treat that place as home; at least for the time being, not necessarily forever. The concept was explained in a taxation case,
Koitaki Para Rubber Estates Ltd v Commissioner of Taxation (Cth) (1941) 64 CLR 241 at 249, by Williams J:"The place of residence of an individual is determined, not by the situation of some business or property which he is carrying on or owns, but by reference to where he eats and sleeps and has his settled or usual abode. If he maintains a home or homes he resides in the locality or localities where it or they are situate, but he may also reside where he habitually lives even if this is in hotels or on a yacht or some other abode."
- 14. Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see
Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248 and
Keil v Keil [1947] VR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place -
Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and
Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see
Norman v Norman (No 3) (1969) 16 FLR 231 at 236. It is important to observe firstly, that a person may simultaneously be a resident in more than one place - see the facts of Lysaght (supra) and the reference by Williams J to "a home or homes" - and, secondly, that the application of the general concept of residence to any particular case must depend upon the wording, and underlying purposes, of the particular statute in relation to which the question arises. But, where the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.
18. Mr Cole, counsel for the Commissioner, submitted, by reference to some remarks of Franki J in
Commissioner of Taxation v Applegate[2]
19. Despite Mr Murray's somewhat discreditable criminal history I had a favourable impression of him as a witness. I accept his evidence that he, in effect, determined to leave Australia on a permanent basis in mid-2006. It is logical that he might come to that conclusion in the circumstances that then prevailed. From that time he no longer had a regular place to live in Australia. More importantly, from early 2008, he established a residence in Sanur, first as a tenant, then as the sub-lessee of the land but the owner of the improvements of it. From October 2008 he was in a de facto relationship and resided in Sanur with the person who is now his wife. He has established relationships with Ketut's family in Bali[4]
20. Without more, the only conclusion to be drawn from this evidence is that Mr Murray has not been residing in Australia since the mid-2006, indeed it demonstrates to my mind that he has established a home in Bali from no later than early 2008.
21. The Commissioner pointed to three areas of evidence which he submits precludes that finding being made. The first is the fact of Mr Murray's frequent and, initially at least, lengthy visits to Australia. The next is the immigration cards completed by Mr Murray on some[6]
22. Despite those matters I am satisfied that Mr Murray was not residing in Australia during the years in issue in the proceedings. I do not regard the information on the immigration cards or the claiming of Medicare benefits as having any great weight at all. Mr Murray was not, in completing the immigration cards, turning his mind to the notion of residence according to ordinary concepts. He said that he did not give any real thought to the answers he gave on the cards; he answered more out of habit. I accept that to be so. There is some support for the notion that he did not give any real thought to the matter in his answer to the question that asked his intended address in Australia. On each occasion (on the cards in evidence before me) Mr Murray gave the address of a friend whose address was, by arrangement, his postal address. Mr Murray did not ever intend to reside at that address or with that friend and did not do so at any relevant time.
23. The fact of payment of Medicare benefits is even less persuasive. Mr Murray was not aware that those benefits were only available to Australian residents. I do not consider that he was acknowledging residence in Australia by claiming and receiving those benefits.
24. The strongest evidence that tells against the conclusion that Mr Murray was not residing in Australia is the number and length of his visits to Australia, particularly in the 2009 year. Mr Murray was unable to give any precise explanation of the purpose for any particular visit and cannot now say what he did on any particular trip. He explains the several visits on two bases: visiting, and caring for, his sick brother (and the brother's equally unwell spouse) and buying equipment for his proposed fishing charter business in Bali. The visits were undertaken well after the time when I am satisfied that Mr Murray had determined to cease living in Australia and to make his home in Bali. The case is one where, from early 2008, Mr Murray had established a residence in Bali. It was where he was residing, with the appropriate resident visa. From that time, Bali was his home and he regarded it as such. It was the place where he intended to return after his visits to this country. His visits to Australia, even though lengthy, did not destroy the continuity of association he had with Bali - it remained where he had his only fixed place of abode, his partner and his assets. He had none of them in Australia. For that reason this is not a case where Mr Murray could be regarded as being a resident of Australia as well as Bali. He had no regular place of abode in Australia, he was dependent upon the hospitality of friends for somewhere to stay. He also relied on one friend to maintain a postal address for him. His connections in Australia were, at best, tenuous.
25. I am then satisfied that in the 2009 income year Mr Murray did not reside in Australia according to ordinary concepts. That conclusion may be reached more readily in the following year where the pattern of Mr Murray's visits to Australia had altered significantly. After returning to Bali in early August 2009 Mr Murray returned only for very brief visits until his arrest and subsequent gaoling. The Commissioner accepted, in a brief submission lodged following the hearing, that Mr Murray's detention in Australia following his arrest, did not, of itself, warrant a conclusion that he was then residing in Australia. His submission was that Mr Murray's prior status as a resident of Australia continued during the period of his detention in Australia. As I accept that Mr Murray was not residing in Australia according to ordinary concepts prior to his detention I accept that his detention does not alter that position.
26. It follows that I am satisfied that Mr Murray was not a resident of Australia according to ordinary concepts during any part of the three years in issue in these proceedings.
Domicile and permanent place of abode
27. Given the conclusion I have reached on the second part of this aspect of the matter I need not decide what Mr Murray's domicile was in the 2009, 2010 and 2011 income years. Even if his domicile remained Australia after his departure in mid-2006 I am satisfied that during the three years Mr Murray's permanent place of abode was outside Australia. In this context it is authoritatively settled that a "permanent place of abode" may be something less than a place where the taxpayer intends to reside for the rest of his life[8]
28. In my view, whatever Mr Murray's domicile, he had a permanent place of abode outside Australia, namely in Bali. He thus does not satisfy sub-paragraph (a)(i) of the definition of resident in the ITAA 1936.
The 183 day rule
29. In each of the three years Mr Murray was actually in Australia during more than one-half of the year of income. In the 2009 year he was present for 191 days, in 2010 for 194 days (in part as a consequence of his arrest and imprisonment) and in 2011 for all of the year (wholly as a consequence of his imprisonment). However for the reasons I have already expressed I am of the view that his usual place of abode was outside Australia and that he did not, at any time after mid-2006 intend to take up residence in Australia. He does not then satisfy sub-paragraph (a)(ii) of the definition of resident.
Conclusion
30. It follows that in my view Mr Murray was not an Australian resident during any of the 2009, 2010 or 2011 income years. His objections to the assessments of income tax and penalty should have been allowed in full. Accordingly the Commissioner's objection decision will be set aside and remitted to the Commissioner with a direction that Mr Murray's objections be allowed in full.
Footnotes
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