Federal Commissioner of Taxation v. Jenkins.Judges:
Supreme Court of Queensland
I have before me two appeals by the Commissioner of Taxation for the Commonwealth of Australia against two decisions of Taxation Board No. 3 whereby the Board upheld objections by a taxpayer against two assessments of income tax in respect of income earned by the taxpayer in the years ending 30th June 1977 and 30th June 1978 respectively. The amounts involved in the amended assessments by the Commissioner are $4,219 and $13,028 and represent income earned by the taxpayer in the New Hebrides during part of the year ending 30th June 1977 and during the whole of the year ending 30th June 1978, which the taxpayer asserts are not part of his assessable income, an assertion which has been upheld by the Board of Review.
The facts which gave rise to these appeals are not really in dispute. The taxpayer was in 1976 employed by the A.N.Z. Bank at Oakey near Toowoomba as accountant. He lived there in a home jointly owned by him and his wife. Late in the year 1976 he accepted an appointment as accountant with the same bank at Vila, New Hebrides. The term of the appointment was three years and involved, inter alia, an increase in salary of $500 per annum together with a district allowance of $1,200 per annum. Other terms and conditions of his appointment are contained in Exhibit 19 and it is not necessary to recite them. Before leaving Australia to take up his appointment, the taxpayer engaged a real estate agent to sell the home at Oakey. There is no evidence that this engagement was otherwise than genuine. However, no sale eventuated and later the A.N.Z. Bank leased these premises from the taxpayer and his wife for a period of one year from 31st January 1977 with an option of renewal for one year and a further option for renewal for the same period at the expiry of the first period of renewal.
The taxpayer's furniture was stored at the bank's expense and an account was kept open at the Oakey branch into which was paid the rental under the lease previously mentioned. Before leaving Australia he cancelled his Medical Benefits Fund membership and in addition, on 7th January 1977, he wrote to the Registrar, Department of Social Security at Toowoomba informing him that he and his family would be residing at Vila for three years as from 1st February 1977. He requested that office to credit any outstanding child endowment to the account at the Oakey branch of the A.N.Z. Bank. The taxpayer said in evidence that he later wrote to the Social Security Department at Toowoomba asking it to cancel the child endowment ``as we were going to Vila''. No copy of this letter was kept and no trace of this letter has been found in that Department.
In evidence-in-chief the taxpayer was questioned about his intention, at the time of his appointment, with respect to the length of stay in Vila. He said he intended to stay the three years stipulated by the bank and said that one could apply for an extension of time to which the bank might or might not agree. The following passage from his evidence reveals the scanty nature of evidence of his intentions with regard to the length of stay in Vila:
``At the time that you got your appointment, did you have any intention at all concerning the possibility or otherwise of applying for an extension after the three years had elapsed? - Well, we both liked it there and we would have extended under normal circumstances.
At that time did you have any ultimate intention about returning to Australia? - Not - at the time of appointment?
Yes? - Really - not at that time.
You had no fixed date? - No.
Did you foresee that ultimately some time you would return to this country? - We possibly could have, yes. We never gave it a lot of thought.''
As it turned out the taxpayer was repatriated to Australia after eighteen months without having directed his attention to any possible prolongation of his stay in Vila. Therefore, insofar as his intention to stay longer than three years (if possible) is concerned, I find that he never came to consider making an application for such purpose.
The taxpayer and his wife and children entered fully into the social and recreational activities in Vila and two of the children went to school there. Such matters I regard as naturally to be expected in normal circumstances and I regard them at best as equivocal on the question of any intention on his part with respect to the duration of his stay at Vila.
The taxpayer said and I accept that he found his duties at Vila exacting and more difficult than he imagined, with the result that his health suffered. He was treated by a local doctor for symptoms consistent with a duodenal ulcer. The doctor in question certified (Exhibit 26) that he would recommend a transfer of the taxpayer from the New Hebrides for medical reasons if it could be arranged. However, at about the end of July 1978, the taxpayer was repatriated back to Australia by his employer because of his inability to cope efficiently with his duties. His subsequent history after returning to Australia is not relevant to any question which I have to decide.
It appears that in July 1977 moneys in respect of child endowment were remitted to the taxpayer's wife at Vila. This was followed by two or three subsequent payments at Vila and a further payment in October 1978. Why such moneys were remitted to Vila spasmodically is something of a mystery. The first sum remitted was $464 which was placed in a ``suspense account'' in the name of the taxpayer's wife and is now held in a solicitor's trust account. It seems to me more probable than not that the taxpayer did not write to the Social Security Department instructing it to cancel the child endowment. This still leaves unexplained why, in the light of the taxpayer's letter to that Department of 7th January 1977, the Department did not pay outstanding amounts of child endowment into the account at the Oakey branch of the bank. However, the payments of endowment are, I consider, irrelevant.
The questions involved in these appeals involve the right of the Commissioner to treat as taxable income the salary earned by the taxpayer in Vila in each of the two financial years already mentioned. Section 17 of the Income Tax Assessment Act requires that income tax is payable upon the taxable income derived during the year of income by any person, whether a resident or non-resident. The term ``resident'' so far as it is relevant to these appeals is defined in sec. 6 of the Act to mean a person, other than a company, who resides in Australia, and includes a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia. It is not and could not be suggested that the taxpayer in question had, at any relevant time, a domicile outside Australia. The question is whether, during any period in 1977 and 1978 he had a permanent place of abode outside Australia.
But before considering this question there is a preliminary matter to be decided and it is whether or not the determination of what is meant by the phrase ``a permanent place of abode'' involves a question of fact or law. If the former, no appeal lies from the decision of the Board (sec. 196(1) of the Income Tax Assessment Act 1936). Thus in
F.C. of T. v. Miller (1946) 73 C.L.R. 93, Rich and Dixon JJ. (Latham C.J. dissenting) held that the question of whether or not a person was ``resident'' in New Guinea during a particular period was a question of fact. The difference between questions of law and questions of fact has been comprehensively reviewed in two cases in the Federal Court to which I was referred by counsel for the Commissioner. The first is
Lombardo v. F.C. of T. 79 ATC 4542 and the second is
F.C. of T. v. Nixon 80 ATC 4297. A consideration of these two cases, as well as of other decisions touching the point persuades me that the phrase ``permanent place of abode'' is a ``technical'' one which must be properly construed. This is so, I consider, because the word ``permanent'' has a variety of shades of meaning depending on the context in which it is used. Accordingly the matter of the proper construction of the phrase in question involves a question of law. In
F.C. of T. v. Applegate 79 ATC 4307 a Full Court of the Federal Court apparently treated the construction of that phrase as necessarily involving a question of law. See also the test suggested by Bowen C.J. in Lombardo (supra) at pp. 4545 and 4546 of the report of that case.
I turn now to a consideration of whether, on the facts of the case as before me, as I have found them, the taxpayer had in either or both the relevant years a permanent place of abode outside Australia. This question arose for decision in Applegate (supra), a case decided on its own facts, as of course it had to be. It is convenient to recite the relevant facts of this case from the headnote of the report as follows:
``The taxpayer was at the relevant time a solicitor employed by a firm of Sydney solicitors. During the year ended 30 June 1972, he was sent to Vila in the New Hebrides to open and manage a branch office for the firm there. He left Sydney for Vila with his wife on 8 November 1971 where, apart from two brief periods, he remained for the balance of the tax year. 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 retained his membership in Australia of a hospitals contribution fund. When he arrived in Vila, he and his wife spent the first two weeks in a hotel and then obtained a lease of a house in Vila. The term of the lease was initially for 12 months with an option to renew for
ATC 4101a further 12 months. The taxpayer was admitted as a legal practitioner in the New Hebrides. He obtained a residency permit for a period of 12 months which he subsequently renewed for a second term of two years.
In July 1973, the taxpayer became ill and came to Sydney for treatment. He later returned to Vila but the firm agreed to replace him. In September of that year he and his wife came back to Australia. Owing to a fall off in international business, the branch office at Vila was closed in 1975. It was always intended by the taxpayer and 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 firm but it was anticipated that it would be of substantial length.''
The Commissioner took the view that the taxpayer did not have a permanent place of abode outside Australia during the relevant periods. The Supreme Court of New South Wales (Sheppard J.) disagreed and found for the taxpayer, and the Commissioner's appeal to the Full Court of the Federal Court (Franki, Northrop and Fisher JJ.) was dismissed. With this result I am in respectful agreement on the facts as they were found to be by those Courts. To my mind a critical fact in Applegate was that the duration of the taxpayer's stay in Vila was indefinite, so that while he remained there no one could point to some place in Australia as being his place of abode. But the facts of the instant case diverge from those in Applegate in that the taxpayer here had not at any material time an intention to remain indefinitely in Vila. He had agreed to go there for three years, and, as I have found, had not given any consideration to prolonging his stay there beyond that period. Did this fact make his stay ``temporary'' in the sense in which that word is used in contradistinction to ``permanent''? In Applegate, Fisher J. said (p. 4317):
``Obviously if his stay is purely temporary and he intends to move on or return to Australia at some indefinite point of time this denies the place of abode an essential characteristic of a home, namely durability.''
It seems to me that the question then arises - how long a stay is a ``temporary'' one? If a stay of ten years cannot sensibly be regarded as ``temporary'', why should a period of three years be so regarded? True it is that in the Shorter Oxford Dictionary one of the primary meanings of ``temporary'' is ``lasting for a limited time''. To limit means, inter alia, to assign within limits, but I baulk at the notion that a stay out of Australia by a person on transfer for a fixed period of ten years must be regarded as temporary simply because the limits of the stay are fixed and ascertainable.
In the appeal from the Board of Review in Applegate to the Supreme Court of New South Wales, 78 ATC 4054, Sheppard J. said that permanent does not mean everlasting and is to be contrasted with temporary or transitory. His Honour added ``The question is thus one of fact or degree''. I respectfully agree that this is so. Being of that opinion I am unable to say that the Board was in error in holding that income earned by this taxpayer in Vila in the year ending 30th June 1977 was not liable to income tax, for the reason that I regard the taxpayer as having then a permanent place of abode outside Australia. He was then in anticipation that until February 1980 he would be living in Vila and nowhere else. As for the year ending 30th June 1978 I am unable to discern from the evidence before me whether prior to that date the taxpayer knew that the duration of his stay in Vila was going to be curtailed. Accordingly I am of the opinion that the income earned by the taxpayer in that financial year is not part of the taxable income of the taxpayer and that the Board was not in error in coming to that opinion.
In the result both appeals by the Commissioner must be dismissed with costs.