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Federal Commissioner of Taxation v. Applegate.

Judges: Franki J

Northrop J
Fisher J

Court:
Full Federal Court

Judgment date: Judgment handed down 29 June 1979.

Northrop J.: This is an appeal brought by the Commissioner by leave of the Federal Court of Australia against a decision of the Supreme Court of New South Wales allowing an appeal against a decision of the Board of Review confirming the disallowance by the Commissioner of an objection by the taxpayer to an assessment of income tax for the year ended 30 June 1972.

ATC 4310

The appeal concerns the question of whether for part of that year of tax the taxpayer was a non-resident within the meaning of that word when used in sec. 25(1) and sec. 23(r) of the Income Tax Assessment Act 1936, as amended, the Act.

The facts are not in dispute. The taxpayer is a solicitor who at all relevant times was employed by Messrs. Sly and Russell, a firm of Sydney solicitors. During the year ended 30 June 1972, at the request of the firm, the taxpayer went to Vila in the New Hebrides for the purpose of opening and managing there a branch office on behalf of the firm. On 8 November 1971 he left Sydney and journeyed to Vila, where apart from two brief periods he remained for the balance of the tax year. It is not disputed that for the period 8 November 1971 to 30 June 1972 his income was derived from sources wholly out of Australia. The taxpayer was married. At the time of leaving Sydney, his wife was expecting their first child. On leaving Sydney, the taxpayer gave up the tenancy of the flat in which he and his wife had been living. He left no assets in Australia, but he retained his membership in Australia of the Hospitals Contribution Fund. Upon arrival in Vila he and his wife spent the first two weeks in a hotel. He then obtained a lease of a house in which he and his wife thereafter lived. The term of the lease initially was for a period of twelve months with an option of renewal for a further period of twelve months.

He was admitted as a legal practitioner in the New Hebrides. He obtained a residency permit for a period of twelve months and subsequently this was renewed for a second term of two years. Initially his staff consisted of a secretary only, but later additional staff were engaged.

The taxpayer and his wife had intended that her confinement for the birth of the child would take place in Vila, but, because of the view they formed concerning the nature of the medical treatment available there, she returned to Sydney for the birth of the child. This occurred in February 1972. The taxpayer spent three weeks on holiday in Sydney during the Christmas 1971 period. In March 1972 he returned to Sydney where he spent three days before returning to Vila with his wife and child. Shortly after the birth of the child, the wife of the taxpayer applied successfully in Sydney for child endowment payments, and these were paid into a bank account in Sydney in the name of the wife's mother. The taxpayer did not know of the application for or receipt of the child endowment payments.

Subsequent to the tax year ending 30 June 1972, apart from a holiday in Australia of about a month, the taxpayer and his wife resided at Vila until July 1973. About that time the taxpayer became ill and received treatment in hospital. In July he was transferred to a hospital in Sydney. He received medical advice that ``he should take it easy''. He was disinclined to return to Vila to live indefinitely in a tropical climate. Late in July he returned to Vila but his firm agreed to replace him. In September 1973, he was replaced by another employee of the firm and he and his family returned to Sydney. Owing to a fall off in international business, the branch office of the firm at Vila was closed in 1975.

The relevance of the evidence of events occurring after 30 June 1972 is not clear. No objection was taken to that evidence and it can be used to test the weight to be given to the evidence of the taxpayer as to his intention when he first went to Vila in November 1971 and during his stay there for the remainder of that financial year, cf.
Nelungaloo Pty. Ltd. v. The Commonwealth (1947) 75 C.L.R. 495 per Williams J. at p. 515;
Willis v. The Commonwealth (1946) 73 C.L.R. 105 per Dixon J. at p. 116.

It was always intended by the taxpayer and by his firm that after the lapse of an indefinite period of time he would return to the Sydney office. The period was not specified or defined in the minds either of the taxpayer or the partners of the firm, but it was anticipated that it would be of a substantial length. The taxpayer would have remained in Vila beyond September 1973 if it had not been for his illness. At the hearing before the Board of Review, evidence was given by one of the partners of the joint intention in the following terms:

``There was no definite period set. He was asked to go there for an indefinite period. There was obviously the establishment of the office which had to be contemplated. We always looked at a period of a couple of years just to get to a break-even stage,

ATC 4311

so we regarded that as just the establishment period. But Mr. Applegate's function was not merely to establish the office, it was to establish it and get it running, because we were very conscious of the fact that whoever went there would get a certain amount of on-the-job expertise that would be hard to replace and we certainly would not want to discard it after it had just been achieved.''

In his own evidence the appellant said:

``I certainly intended that not only would I establish but manage it and be the manager of that branch office. My expectation was that I would be permitted to return if I wanted to, whenever I wanted to, but I would come back if I was ever recalled. Beyond that I had no expectation.

The Chairman: When you said you would be permitted to return, this is because of your status with the firm and as an associate partner - is that so? - Yes, I would think so. The conditions were not easy in that sort of environment and I expected that not only my stay, but I think the firm was a reasonably tolerant employer and I would have permission to return if I did not enjoy it. In fact I did enjoy it.''

In a letter dated 25 September 1973 written to the Commissioner the taxpayer said:

``At the time of leaving Australia in November 1971 it was my intention to set up a home for myself and my family, so that I could attend to the job assigned to me by my employer, namely the establishment and operation of a Vila Branch Office of the Sydney firm. I did not, under any circumstances, intend to return to Australia after a short period of temporary absence. Nor did I ever intend that I would never return to Australia. As I have never claimed to have abandoned my domicile of origin, I submit that this is irrelevant. The position to which I was appointed was (and is) a permanent position and required me to establish a permanent abode or residence for myself and family. My clear intention was that I would reside outside Australia permanently but not indefinitely.''

During cross-examination while giving evidence before the Board of Review, the taxpayer was referred to the last sentence in the paragraph just set out and in relation to it he said:

``I think the word `indefinitely' is probably on reflection not a good choice of words; if that means without finite term I think it is not right. What I meant to say was, not forever.''

It is necessary to set out the relevant provisions of the Act. Section 25(1) provides as follows:

``25.(1) The assessable income of a taxpayer shall include -

  • (a) where the taxpayer is a resident - the gross income derived directly or indirectly from all sources whether in or out of Australia; and
  • (b) where the taxpayer is a non-resident -
  • the gross income derived directly or indirectly from all sources in Australia, which is not exempt income.''

Section 23(r) provides as follows:

``23. The following income shall be exempt from income tax: -

  • ...
  • (r) income derived by a non-resident from sources wholly out of Australia;
  • ...''

This provision appears to add nothing to the provisions contained in sec. 25(1)(b) of the Act. The interpretation section of the Act provides:

``6.(1) In this Act, unless the contrary intention appears -

...

`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 his permanent place of abode is outside Australia;
    • (ii) who has actually been in Australia, continuously or intermittently, during more than

      ATC 4312

      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...''

The extension of the definition of ``resident'' contained in para (a)(ii) does not apply to the facts of this appeal but the paragraph is set out because of the need to contrast the terminology in that paragraph with that in para. (a)(i).

From 8 November 1971 to 30 June 1972 the income received by the taxpayer was derived from sources wholly out of Australia. During that period the taxpayer was domiciled in Australia. Thus the issue to be decided is whether during that period the taxpayer was a non-resident.

This involves deciding whether during that period he was a ``resident'' as defined in the Act there being, no contrary intention appearing in sec. 25(1) or sec. 23(r) of the Act. This issue was the issue raised in the appeal from the Board of Review and decided by the decision of the Supreme Court of New South Wales. In seeking leave to appeal to the Federal Court, sec. 196 of the Act, the Commissioner relied inter alia, upon the following grounds:

``Leave is sought to appeal against the whole of the said judgment. The grounds upon which such application is made are: -

  • 1.(a) That the appeal will involve important questions of law of general application of the provisions of sec. 6(1), 23(r) and 25 of the Income Tax Assessment Act 1936 including: -
    • (i) The principles to be applied in determining when and in what circumstances a person acquires a permanent place of abode outside Australia within the meaning of the said Act.
    • (ii) The principles to be applied in determining when and in what circumstances a person ceased to be a resident of Australia within the meaning of the said Act.
    • (iii) The principles to be applied in determining when and in what circumstances income derived by a resident from sources out of Australia is exempt from income tax.
  • (b) Numerous other taxpayers have derived income in circumstances substantially similar to those of the Respondent and it is important that the principles applicable to the assessability or otherwise of such income and the meaning to be ascribed to the words `permanent place of abode' be finally determined.''

On 15 June 1978 a Full Court of the Federal Court of Australia granted leave to the Commissioner to appeal from the judgment of the Supreme Court of New South Wales, but on condition that the Commissioner pay the taxpayer's costs of the appeal in any event. In the subsequent Notice of Appeal, the Commissioner raised the same issue for decision by this Court as was before the Supreme Court of New South Wales. When the appeal came on for hearing before the Federal Court, Senior Counsel for the Commissioner sought leave to amend the Notice of Appeal to include a ground that the Supreme Court of New South Wales should have dismissed the appeal from the Board of Review on the ground that there was evidence to support the conclusions of fact of the members of the Board in their application of the relevant principles of law. This was the first time that an issue of this kind was raised, and the application was refused. The proposed new ground depended upon the exercise of the discretion conferred upon the Commissioner, or rather in this case, the Board of Review, see sec. 193 of the Act, by the words ``unless the Commissioner is satisfied'' appearing in para. (a)(i) of the definition of ``resident'' and would have required this Court to examine the exercise of that discretion conferred on the Commissioner, see
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 per Dixon J. at p. 360;
F.C. of T. v. Brian Hatch Timber Co. (Sales) Pty. Ltd. 71 ATC 4093 ; (1972) 128 C.L.R. 28 and the other cases cited in Melbourne Home of Ford Pty. Ltd. and Ors. v. Trade Practices Commission and Anor. , Full Court, Federal Court of Australia judgment 28 March 1979 per Franki and Northrop JJ. at pp. 34-5. Since the new ground attempted to raise an issue of a kind different from that raised in the Supreme

ATC 4313

Court of New South Wales and different from that for which leave to appeal from that Court was granted, the application for leave to amend the Notice of Appeal in this respect was refused.

Any person who resides in Australia is, by definition, a resident within the meaning of the Act. The word ``reside'' has a very wide meaning, see
F.C. of T. v. Miller (1946) 73 C.L.R. 93 per Latham C.J. at pp. 99-100. One of the dictionary meanings of the word ``reside'' is ``to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place''. A person may reside in more than one country at any one time, see
Robertson v. F.C. of T. (1937) 57 C.L.R. 147 per Dixon J. at p. 163 and
Gregory v. D.F.C. of T. (W.A.) (1937) 57 C.L.R. 774 per Dixon J. at pp. 777-8.

From 8 November 1971 to 30 June 1972 the taxpayer resided at Vila but not at the one house. On no view of the facts can it be said that during that period he resided in Australia. The extended definition of ``resident'' contained in para. (a)(ii) cannot apply since the taxpayer had not ``actually been in Australia, continuously or intermittently during more than one half of the year of income''. This paragraph appears to draw a distinction between ``usual place of abode'' and ``residence'' but it is not necessary to consider that matter further. Under para. (a)(i) of the definition, the meaning of ``resident'' is extended to include persons, subject to one qualification, whose domicile is in Australia. This includes persons whose domicile of origin is in Australia as well as persons who have acquired a domicile of choice in Australia. The one qualification to this extended meaning of ``resident'' is that of a person whose domicile is in Australia but ``his permanent place of abode is outside Australia''. This qualification must relate to the year of income during which the income has been derived.

The contention made by Senior Counsel for the Commissioner was that in the extended definition of ``resident'' the phrase ``his permanent place of abode is outside Australia'' should be construed as applying to a person who ``intends to live outside Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future, except at some remote albeit specific point of time''. He then submitted that since the taxpayer possessed a definite intention to return to Australia in the foreseeable future, he did not come within the qualification contained in para. (a)(i) of the definition of ``resident''.

In my opinion that contention should be rejected. The qualification applies to persons who although domiciled in Australia, do not reside in Australia within the accepted meaning of the word ``reside''. The qualification is stated in an affirmative form, namely, where the person has his permanent place of abode outside Australia. The qualification is not concerned with whether a person has abandoned his Australian domicile or has acquired a new domicile or not. The qualification is concerned with the person's permanent place of abode. The phrase ``place of abode'' may have many meanings, it can refer to the building or place where a person sleeps and it can refer to the building or place where he is usually found, for instance, ``his place of business'', see
Price v. West London Investment Building Society (1964) 2 All E.R. 318 per Danckwerts L.J. at p. 321. The phrase is often used as being synonymous with the word ``residence'' see, for example,
Levene v. I.R. Commrs. (1928) A.C. 217 and
I.R. Commrs. v. Lysaght (1928) A.C. 234 . In the present case there can be no doubt that whatever meaning is given to the phrase, during the period in question the taxpayer's ``place of abode'' was outside Australia. During that period he did not reside in Australia. He had no residence in Australia. He had no home in Australia. He did not carry on business or work in Australia. He received no income from sources within Australia. It follows, therefore, that the real issue is whether, during the period in question, the taxpayer's place of abode outside Australia was permanent or not.

The word ``permanent'' can have many shades of meanings. This is illustrated by a reference to the Shorter English Oxford Dictionary . And as was said by du Parcq L.J. in Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd. (1942) 2 K.B. 184 at p. 196:

```Permanent' is indeed a relative term, and is not synonymous with `everlasting'.''

ATC 4314

The word ``permanent'' must be construed according to the context in which it appears, see per Lord Evershed in McClelland v. Northern Ireland General Health Services Board (1957) 2 All E.R. 129 at p. 140.

In the present case the phrase ``permanent place of abode'' appears in a taxing statute by which income tax is levied on income derived during a financial year. Where a taxpayer resides in Australia, the assessable income of that person includes the gross income derived from all sources but where the person does not reside in Australia, then subject to the extended meaning given to the word ``resident'', the assessable income of that person includes the gross income derived from all sources in Australia only, it does not include the gross income derived from sources outside Australia. The tax is assessable on gross income received on an annual basis and is assessed on an annual basis. The word ``permanent'' as used in para. (a)(i) of the extended definition of ``resident'', must be construed as having a shade of meaning applicable to the particular year of income under consideration. In this context it is unreal to consider whether a taxpayer has formed the intention to live or reside or to have a place of abode outside of Australia indefinitely, without any definite intention of ever returning to Australia in the foreseeable future. The Act is not concerned with domicile except to the extent necessary to show whether a taxpayer has an Australian domicile. What is of importance is whether the taxpayer has abandoned any residence or place of abode he may have had in Australia. Each year of income must be looked at separately. If in that year a taxpayer does not reside in Australia in the sense in which that word has been interpreted, but has formed the intention to, and if fact has, resided outside Australia, then truly it can be said that his permanent place of abode is outside Australia during that year of income. This is to be contrasted with a temporary or transitory place of abode outside Australia. In any event the extended meaning of ``resident'' becomes relevant only when, during the year of income under consideration, the taxpayer does not reside in Australia. Paragraphs (a)(i) and (ii) of the definition are complementary provisions enlarging the group of persons who do not reside in Australia but become liable to pay income tax in Australia.

The facts of the present case show clearly that during the period 8 November 1971 to 30 June 1972 of the year of income ended 30 June 1972 the taxpayer's permanent place of abode was outside Australia. At the commencement of that period he had the requisite intention to abandon his place of residence in Australia and to establish a place of residence outside Australia. During the whole of that period he in fact resided outside Australia, he did not reside in Australia.

In my opinion, the appeal should be dismissed with costs.


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