Case P60

Judges:
HP Stevens Ch
JR Harrowell M
BR Pape M

Court:
No. 1 Board of Review

Judgment date: 23 July 1982.

---

H.P. Stevens (Chairman)

The question for decision in this reference is whether salary derived in relation to work carried out overseas is exempt in terms of either sec. 23(q) or 23(r).

2. In his return of income for the year ended 30 June 1978 the taxpayer (a specialist seaman in relation to dredging) disclosed income from an Australian employer from 22 February 1978 and that, during the period 1 July 1977 to 3 December 1977, he had worked overseas and that this income had been taxed in country X. This claim that the relevant amount of $11,348 was exempt in terms of sec. 23(q) was not accepted and the assessment was objected to on the grounds that:

• (a) it was ``income from a source out of Australia, not exempt from income tax in the country of source of income'' - tax having been paid ``at the source from which it was derived'', i.e. X;
• (b) other employees had had their X income treated as exempt and it was wrong to penalize the taxpayer because he was assessed in a different State office;
• (c) he ``was a resident in the country of my employment during the period of my employment'' and was, therefore, exempt in terms of sec. 23(r);
• (d) his income for the hours worked was ``comparative to... that earned in Australia after payment of taxes'' and ``that any doubt of the issue of source be resolved in my favour''.

3. Insofar as ground (b) of the taxpayer's objection is concerned he is upset in that:

• (i) he made enquiries of the tax office to confirm that the income would be treated as exempt before deciding to accept the position; and
• (ii) other fellow employees have had their claims for exemption accepted.

Unfortunately the Board must decide the reference actually before it purely on the basis of the facts thereof and the law applicable thereto. If the assessment before the Board were an amended assessment the apparent change of departmental attitude could be of real significance but that is not the case. One can readily appreciate the taxpayer's feelings but that is not a basis on which the Board can act. Ground (d) similarly is not one that is relevant to the issues to be decided. The relevant grounds are, therefore, grounds (a) and (c).

4. The taxpayer, married with children, has had his home in Y, a town in Western Australia, since at least 1969. However in the period to date he has only worked one year in that town. As a dredging specialist his work takes him away from Y and, in about 1972, he commenced work on a harbour facility in New South Wales. From there he went to a project in South Australia and early in 1976 came back to New South Wales in relation to another project of his employer. There he learned that his employer's main dredge had been leased to an overseas joint venture for work in country Z and that there was more of

---

ATC 289

a possibility for him to get employment there than in New South Wales. At some later date in 1976 he was retrenched.

5. Mr. A secretary of the company which retrenched the taxpayer gave evidence. The company was jointly owned by two large overseas organisations and, when the directors ascertained their main dredge would be idle in Australia for some considerable time, they made enquiries discovering that they could hire it to a joint venture already operating in Z. After reaching basic agreement on a boat hire basis, i.e. without crew, the company was asked if they could recommend people to crew it because there was a shortage of skilled crew. The company provided a list and was asked to ``contact these people on their behalf and offer them employment''. Letters of 23 July 1976 were sent to most of the people terminated - including the taxpayer - stating, inter alia:

``Due to the lack of dredging contracts in Australia the... has been chartered to... Joint Venture, a company engaged in work in (Z).

The company is prepared to offer employment to certain key personnel who have been employed in Australia on... and we took the liberty of including your name on the list of such key personnel which was forwarded to them.

The company has now advised that they are prepared to offer you employment in (Z) initially on a contract at (B).

In general the terms and conditions of such employment will be similar to those contained in the attached document.

Should you be willing to accept employment by... Joint Venture you will be asked to sign an Agreement similar to this document when you are in (B).

Several specific matters have not been included in the document and these are as follows:

• ...
• 3. Communications received from the dredging company which chartered the... has indicated that personal income tax, to be paid locally, will be in the order of 5% of gross earnings.
• ...

You will appreciate that we wish to know whether you are prepared to accept this offer of employment by... Joint Venture for work in (B). Should you be so prepared will you sign the duplicate copy of this letter and return it to this office...

On receipt of this advice we will be able to advise your prospective employers of your acceptance and arrangements can be made for your travel to (Z).''

6. The proposed employment agreement between D (the company) and taxpayer (as employee) provided that:

``1. The Company shall employ the Employee who shall serve the Company in (Z)...

2. The Agreement entered into is for work to be carried out in (Z)...

...

7. The Employee will become entitled to leave in Australia, of one calendar day for each three calendar days stay in (Z)...

...

9. An allowance of $25.00 shall be paid to the Employee for each and every voyage he makes travelling to and from (Z) from his home port in Australia...

10. Income Tax including Australian Medibank Contributions any payment of personal Income Tax remains the responsibility of the Employee.''

Special conditions included medical treatment ``brought on by any sickness whilst the Employee is in (Z)'' and for the cessation of services ``at the time of completion of the dredging contracts in (Z)''.

7. At Y the taxpayer signed as requested and sent the papers back to the company. He never signed anything further when he arrived at B. He refused to sign a later agreement proffered which altered the medical conditions.

8. Following his acceptance the taxpayer left Perth on 6 August 1976 arriving at C the next day. After a 2-3 day wait for visas he entered Z. He then worked, or was available for work, in Z waters. His family remained at Y - although it was hoped accommodation might become available for them such did not eventuate. He did not at any time visit X.

---

ATC 290

9. Although the facts did not clearly emerge it would seem that D (the taxpayer's employer) had an office in X and it was from there that he was ``paid''. Apparently moneys would be credited to the taxpayer's account with D - he did not have a bank account in either X or Z - and would be disbursed at the taxpayer's direction. Some remittances were made to Z, some to Australia and on one occasion to Thailand - ``it could be paid anywhere in the world at our direction''. The proposed agreement (para. 6) provided for amounts ``expressed in Australian currency'' and remittances had regard to any alteration in exchange rates. At other times the taxpayer brought money home with him to Australia. In this regard the taxpayer said that all told he made five return trips (fares paid by D under agreement) - each of ``at least a month's duration'' - with stopovers in Thailand on three occasions and ``was never away from home longer than three months''. He said that initially ``25 per cent of the time was spent out of (Z) and after 1 May 1977, 30 per cent of all the time was spent out of (Z)''. He ceased working for D in December 1977 and returned home to Australia.

10. No evidence was given as to the laws of X and the taxpayer conceded he never lodged any income tax returns with the X authorities - nor did he lodge any with the authorities of Z. However he said ``we were told that the income had to be taxed in (X) and it would be approximately 5% of the income''. There were tendered certificates from the Commissioner of Income Tax of X to D re the taxpayer. They certified ``that the above-mentioned employee of your company has been subject to income tax and consequently assessed by me on the total income of... earned during the period of employment being... by virtue of sec. 34 of the X Income Tax Law''. The certificates dated 24 February 1977, 10 August 1977 and 27 February 1978 respectively covered the periods 8 August 1976 to 31 December 1976, 1 January 1977 to 18 June 1977 and 19 June 1977 to 3 December 1977. No details were given as to the amounts of tax assessed or how those taxes had been ``fully paid'' but the taxpayer said ``we paid approximately 5 per cent of the gross amount as taxation and we used to check that with our remuneration accounts''.

11. The closest the evidence came to the legal position in X was the following statement of the taxpayer which he based on an extract from Taxhavens Encyclopaedia and believed applied to his period of service, viz.:

``Well, as far as paying tax in X, I do not have any X law books to state anything to that, but roughly speaking I understood from D that persons who were not citizens of X who derive and receive remuneration for services outside of X while employed by X offshore and shipping companies may have remuneration remitted by the company to an external account. Thereupon, after payment of tax, employers may remit their salaries freely abroad. It should be noted that both companies and such employees may keep and operate external accounts in X without being subject to exchange control restrictions. It was my understanding that before remuneration could be remitted out of X it was compulsory to pay this tax.''

12. Turning now to ground (a) of the objection it was the taxpayer's submission that the source of his income was not the work performed in Z but was the contract made in X. In support he said it was his ``willingness to perform if they provided work'' rather than performance that counted, and referred to the time he spent outside Z on leave (which had no relation to performance he contended) and to bonus payments which were determined by D in X, and similarly did not have regard simply to the period he physically performed work in Z. He said he would have been paid even if he had done nothing (other than be willing) so that actual performance was irrelevant. He considered his case was not ``even remotely similar'' to
French (1957) 98 C.L.R. 398 or to
Efstathakis 79 ATC 4256 and referred to
Mitchum (1965) 113 C.L.R. 401 ; In
re a Taxpayer (1930) 24 Tas. L.R. 14 , and to a number of others. He felt ``the circumstances of my remuneration are very similar to Mitchum's in many respects. He was paid... as an artist'' and that in the taxpayer's own field, he was also an artist, i.e. master of it - that being ``one of the reasons the company would pay remuneration independent of the work performed''.

---

ATC 291

13. Although many cases were traversed I think it necessary to refer to only one, Efstathakis, wherein Bowen C.J. and Brennan J. have dealt with the principles to be applied. Without quoting therefrom I would refer to the analysis of the Chief Justice at pp. 4258-4259 and to the comments of Brennan J. at pp. 4260-4261.

14. Evaluating the circumstances of the case as best I can I would find that the source of income is Z rather than X. As para. 5-7 show any source element relative to obtaining the contract of employment would be Australia (not X) whilst everything was related to ``presence'' (to use a neutral term) in Z. No mention was made anywhere re X and, with reference to payment, it could be paid anywhere at his direction. Admittedly provided he arrived in Z and was willing to work, he would be paid but it is unrealistic to hold that the payments actually received were completely unrelated to the physical work performed by the taxpayer - he was engaged to perform specific services in a named place and he did so.

15. Turning now to ground (c), i.e. whether he is exempt in terms of sec. 23(r), this ground was not really the subject of argument. As the Commissioner's representative said:

``Now there has been no argument, in fact, by (taxpayer) about the residency in Australia and I would submit that for the full period the taxpayer was, in fact; a resident of Australia. There has not been any evidence otherwise on that, and therefore I would say we should leave that sec. 23(r), it has got no application.''

However such ground of objection was not withdrawn by the taxpayer and it remains to be considered.

16. The latest Court decision on residency is
F.C. of T. v. Jenkins 82 ATC 4098 wherein Sheahan J. refers to the leading case of
F.C. of T. v. Applegate 79 ATC 4307 (a decision of the Full Court of the Federal Court). Having regard to the principles outlined I am unable to conclude, on the present factual situation, that the taxpayer is properly to be regarded as a non-resident. As such sec. 23(r) has no application.

17. For the above reasons I would uphold the Commissioner's decision on the taxpayer's objection and confirm the assessment for the year ended 30 June 1978.